House Hearing, 112TH Congress - Medicare Premium Support Proposals

MEDICARE PREMIUM SUPPORT PROPOSALS
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
APRIL 27, 2012
Serial No. 112HL10

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COMMITTEE ON WAYS AND MEANS

DAVE CAMP, Michigan, Chairman
WALLY HERGER, California
SAM JOHNSON, Texas
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
DEVIN NUNES, California
PATRICK J. TIBERI, Ohio
GEOFF DAVIS, Kentucky
DAVID G. REICHERT, Washington
CHARLES W. BOUSTANY, JR., Louisiana
PETER J. ROSKAM, Illinois
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida
ADRIAN SMITH, Nebraska
AARON SCHOCK, Illinois
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York
SANDER M. LEVIN, Michigan

CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL, JR., New Jersey
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
JENNIFER SAFAVIAN, Staff Director

JANICE MAYS, Minority Chief Counsel
WALLY HERGER, California, Chairman
SAM JOHNSON, Texas
PAUL RYAN, Wisconsin
DEVIN NUNES, California
DAVID G. REICHERT, Washington
PETER J. ROSKAM, Illinois
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida
FORTNEY PETE STARK, California

MIKE THOMPSON, California
RON KIND, Wisconsin
EARL BLUMENAUER, Oregon
BILL PASCRELL, JR., New Jersey
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records
of the Committee on Ways and Means are also published in electronic form. The printed
hearing record remains the official version. Because electronic submissions are used to
prepare both printed and electronic versions of the hearing record, the process of converting
between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process
is further refined.
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CONTENTS
Page
Advisory of April 27, 2012, announcing the hearing ............................................
WITNESSES
Honorable John B. Breaux, Senior Counsel, Patton Boggs, LLP ........................
Honorable Alice M. Rivlin, Ph.D., Senior Fellow, Economic Studies, Brookings
Institution .............................................................................................................
Honorable Joseph R. Antos, Ph.D., Wilson H. Taylor Scholar in Health Care
and Retirement Policy, American Enterprise Institute ....................................
Honorable Henry J. Aaron, Ph.D., Senior Fellow, Economic Studies, Brookings Institution .....................................................................................................
6
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SUBMISSIONS FOR THE RECORD
AARP, statement .....................................................................................................

AFLCIO, statement ...............................................................................................
AFSCME, statement ................................................................................................
Alliance for Retired Americans, statement ............................................................
Center for Fiscal Equity, statement .......................................................................
Consumers Union, statement .................................................................................
Families USA, statement ........................................................................................
Health Care for America Now, statement .............................................................
HLC, statement .......................................................................................................
National Committee to Preserve Social Security and Medicare, statement .......
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MEDICARE PREMIUM SUPPORT PROPOSALS

FRIDAY, APRIL 27, 2012
U.S. HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON HEALTH,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:00 a.m., in Room
1100, Longworth House Office Building, Hon. Wally Herger [Chairman of the Subcommittee] presiding.
[The advisory announcing the hearing follows:]
(1)
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ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
FOR IMMEDIATE RELEASE
Friday, April 27, 2012
HL10
CONTACT: (202) 2251721
Chairman Herger Announces a Hearing on

Medicare Premium Support Proposals
House Ways and Means Health Subcommittee Chairman Wally Herger (RCA)
today announced that the Subcommittee on Health will hold a hearing to examine
proposals to reform Medicare through a premium support model. The hearing will
take place on Friday, April 27, 2012, in Room 1100 of the Longworth House
Office Building, beginning at 9:00 a.m.
In view of the limited time available to hear from witnesses, oral testimony at
this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for
consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow.
BACKGROUND:
The Medicare program was enacted on June 30, 1965, when President Lyndon
Johnson signed into law the Social Security Amendments Act (P.L. 8997). At the
time of its creation, Medicares Fee For Service (FFS) design was modeled after the
Blue Cross Blue Shield plans that were prevalent throughout the Nation. However,
despite repeated and significant advances in private insurance over the last 45
years, Medicares FFS delivery design has largely remained unchanged.
Medicares FFS delivery system and its antiquated and siloed benefit design has
also led to inefficiencies and financial challenges throughout Medicares history. On
numerous occasions, Congress has been forced to act to slow the growth of Medicare
in order to extend the programs solvency. As a result, todays Medicare program
is unsustainable. According to the 2011 Medicare trustees report, Medicares Hospital Insurance Trust Fund is expected to go bankrupt by 2024, 5 years earlier than
the trustees projected in 2010.
In announcing the hearing, Chairman Herger stated, The American public
recognizes that todays Medicare program faces significant financial challenges. Unless Congress acts, the Medicare program that seniors and people with disabilities rely on will go bankrupt in just a few short years. In
order to protect the Medicare program for future beneficiaries, Congress
must look beyond simply slashing Medicare provider reimbursements,
which will eventually result in beneficiaries losing access to care. The premium support model holds promise to place Medicare on sound financial
footing while transforming and modernizing the program to provide greater choice for beneficiaries. Such proposals have enjoyed bipartisan support
for decades, and it is time to move beyond partisan arguments and focus
on the bipartisan solutions that will strengthen and improve Medicare for
future generations of Americans.
FOCUS OF THE HEARING:

The hearing will review the bipartisan support for implementing a premium support system in order to modernize the Medicare benefit while also improving the
programs long-term financial solvency.
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DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee
website and complete the informational forms. From the Committee homepage,
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would like to submit, and click on the link entitled, Click here to provide a submission for the record. Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance
with the formatting requirements listed below, by the close of business on Friday, May 11, 2012. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office
Buildings. For questions, or if you encounter technical problems, please call (202)
2251721 or (202) 2253625.
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If you are in need of special accommodations, please call 2022251721 or 202226
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Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
Note: All Committee advisories and news releases are available on the World
Wide Web at http://www.waysandmeans.house.gov.
Chairman HERGER. The Subcommittee will come to order.

We are meeting today to examine proposals to reform Medicare
through premium support and the bipartisan support for such proposals.
First, I think it should be abundantly clear that despite what
some on the other side might say, Republicans support the Medicare program. The program serves as a critical function in our society, ensuring that American seniors and people with disabilities
have health care coverage.
Unfortunately, the program faces significant financial challenges
and is slated to go bankrupt in 2024. We cannot keep tweaking
here and tweaking there, hoping to kick the can down the road for
a year or two. As the Medicare trustees again stated in their annual report, Congress must act sooner rather than later to reform
the program to ensure its viability.
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The Medicare program is in dire need of reform and improvement so that it meets the health care needs of its beneficiaries in
the 21st century.
The traditional Medicare benefit was created in 1965 and it really hasnt been reformed since, despite the fact that the delivery of
health care and the private insurance market have changed dramatically.
The Medicare fee-for-service benefit design, with its array of confusing coinsurance and deductible levels and its siloed delivery system, has not kept pace with the rest of health care. Can you imagine buying your hospital insurance from one insurance company,
your doctors office insurance from another insurance company,
your prescription drug insurance from yet another company and
catastrophic spending protections from a fourth company? That is
exactly what the majority of Medicare beneficiaries do today. This
outdated design breeds confusion, waste, and even fraud.
Medicares antiquated design also inhibits care coordination,
incentivizes overuse, and has led to financial challenges throughout
Medicares history.
So what is to be done? Simply hoping to make the Medicare program solvent by cutting payments to providers is unrealistic. The
Chief Medicare Actuary has warned that the cuts already enacted
as part of the Democratic health law would drive Medicare payments below Medicaid levels, which could result in severe problems with beneficiary access to care. Further drastic provider cuts
may make Medicare appear solvent on paper, but it would do so
at the expense of the millions of seniors and people with disabilities who depend on the program.
Instead, we should examine reforms that will protect and improve the Medicare program, and premium support is one way to
do that. Since the term premium support was coined by Henry
Aaron, one of our witnesses here today, and Robert Reischauer,
both Democrats, it has received bipartisan support.
Moving to a premium support model was advanced by the National Bipartisan Commission on the Future of Medicare, which
was cochaired by Democratic Senator Breaux, another witness here
today. Writing in support of the proposal, Senator Breaux and
former Ways and Means Chairman Bill Thomas stated that they
believe Medicare can be more secure only by focusing the governments powers on ensuring comprehensive coverage at an affordable price rather than continuing the inefficiency, inequity, and inadequacy of the current Medicare program.
Premium support was also a key component of the recommendations from the Bipartisan Policy Center cochaired by Senator Pete
Domenici and former CBO Director and Clinton Administration
OMB Director Alice Rivlin, who is also testifying today.
It is in this vein that the 2013 House budget includes a premium
support proposal. We have drawn upon the ideas that our witnesses have proposed over the past 2 decades and put forward a
plan to protect Medicare for future generations.
There certainly will be differing opinions about how a premium
support proposal should work. That is a healthy discussion. However, simply hiding our head in the sand is not.
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House Republicans have made it abundantly clear that we will
not simply watch Medicare become insolvent. My friends on the
other side may not like our proposal to protect the Medicare program but where is yours? Relying on $14 billion in savings from
so-called delivery reforms in the health care law is not going to
save the program. They are already built into the Medicare trustees estimates that predict Medicares demise in just over 10 years.
There is some time before Medicare faces the dire shortfalls that
would jeopardize access to care. However, we would be wise to heed
the charge given to us by the Medicare trustees and begin to work
together now to place the Medicare program on solid financial
ground. It is my hope that todays hearing would be the beginning
of this effort.
Before I recognize Ranking Member Stark for the purposes of an
opening statement, I ask unanimous consent that all Members
written statements be included in the record. Without objection, so
ordered.
I now recognize Ranking Member Stark for 5 minutes for the
purpose of his opening statement.
Mr. STARK. I would like to thank Chairman Herger for holding
this meeting. I think it is the first hearing that Republicans have
held in the Ways and Means Committee to advance their plan to
end the Medicare as we know it. Basically Republicans want to
take away Medicares guaranteed benefits and replace it with a
voucher and put the insurance companies back in charge. I dont
like their plan. I appreciate their honesty in flying their flag to dismantle Medicare high and proud.
This year they modified their plan by saying that traditional
Medicare would remain an option. That promise isnt worth very
much. Traditional Medicare might be theoretically available, but
would be out of reach of many because the voucher would not be
guaranteed to cover costs.
Traditional Medicare would undoubtedly attract sicker patients
and quickly enter into a death spiral.
My Republican colleagues dont like the sound of voucher to describe their plan so they have made up a new term called premium
support. They also dislike being the sole owners of this plan, so
they are holding this hearing today. They want to share the blame
and are trying to overshadow the fact that every single Democrat
in the House of Representatives voted against their budget, which
includes their Medicare voucher proposal. I can count on maybe
one hand the Democrats who support vouchers or similar proposals.
Dr. Aaron actually has the dubious honor of having coined the
phrase premium support, but his written testimony today makes
clear he is no proponent of the Ryan plan. The only Democrat I
have heard say nice things about premium support is Ron Wyden,
and he quickly disavowed the Ryan budget and said I didnt write
it and cant imagine a scenario where I would vote for it.
I am going to go on record again making clear the strong opposition that Democrats have to the House Republican proposal. By
any name it would be devastating to Medicare beneficiaries, raising
their costs, negating the gains made from Medicare that ensure
that all our seniors have quality affordable health care. Instead
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they would return us to a time when private health insurers would
control what care seniors get and what price they are forced to pay.
The CBO has said it would lead to an increase in overall national
health spending as seniors and people with disabilities are moved
into less efficient, more costly private plans. It simply takes us in
the wrong direction.
Now, I have to agree with my chairman that there are reforms
that we can and should continue to make to Medicare. I am proud
of the provisions we included in the health reform bill that are already moving forward, payment and delivery system reforms. They
are reducing overpayments to private health insurers and their
plans to cost taxpayers tens of billions of dollars each year, adding
years of solvency to the trust fund through our recent legislation.
We did this while preserving and even improving Medicare benefits, proving that you dont have to kill the patient to save it.
With that, I look forward to hearing from our witnesses today.
Thank you, Mr. Chairman.
Chairman HERGER. Thank you. Today we are joined by four
witnesses, former Senator John Breaux, who chaired the 1999 National Bipartisan Commission on the Future of Medicare; Alice
Rivlin, a Senior Fellow at the Brookings Institution and Cochair of
the Bipartisan Policy Centers task force on debt reduction; Joe
Antos, the Wilson H. Taylor scholar at American Enterprise Institute; and Henry Aaron, a Senior Fellow at the Brookings Institution. You will each have 5 minutes to present your oral testimony.
Your entire written statement will be made a part of the record.
Senator Breaux, you are now recognized for 5 minutes.
STATEMENT OF HON. JOHN B. BREAUX, SENIOR COUNSEL,

PATTON BOGGS, LLP
Mr. BREAUX. Thank you very much, Mr. Herger, for inviting
me. Ranking Member Pete Stark, he and I have been involved in
this for many, many, many years. Thank you all for inviting me.
Jim McDermott, who served with me in a great capacity when we
had the National Bipartisan Commission on Medicare Reform, and
many of you who I have had the privilege of working with in different capacities. Thank all of you for inviting me to talk about one
of the most important issues and at the same time one of the most
divisive issues that either party is going to have to face, and that
is what do we do with Medicare reform?
Let me say I had the privilege of serving in this body for 14 years
in the House and 18 in the Senate, or the other body as we like
to have called them over here in the House. So I think I fully understand the difficulties that each Member from each party has in
addressing the very difficult issue of how we continue to provide
quality health care for our Nations seniors.
I have observed over the years that some Democrats, not all, but
some have taken the position that in health care the government
should do everything and the private sector should do nothing. On
the other side there are some Republicans, not all, but some who
take and argue the opposite position that the government should
do nothing when it comes to health care and that the private sector
should do everything.
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My opinion is that in order to ever reach an agreement between
the two parties, Congress is going to have to combine the best of
what government can do with the best of what the private sector
can do and put the two together. I would submit to this panel that
that is exactly what we did in creating Medicare Part D. The best
of what government can do in that legislation is, one, help pay for
the program which the government can do through the taxation
system. Second, government can help set up the mechanics and
structure of the program with standards that the government
would put into place. And third, government can make sure that
private sector and companies do not scam the system and can actually deliver the product. Government does those things fairly well.
On the other hand, the private sector needs to be involved. The
private sector can create competition among competing plans. The
government doesnt create competition, private sector can do that.
Second, private sector can bring invasion and new products to the
market. Government doesnt do that very well. And third, the private sector can deliver beneficiaries choices to allow them to select
the best plan for themselves and their families.
Now our current Medicare program, as all of you know, was
signed into law by President Lyndon Johnson back in 1965. And
the model chosen to deliver those health benefits 47 years ago was
the fee-for-service model, providers do the service and the government pays the fees. To control the cost the government fixes the
price for everything from bed pans to brain surgery. Providers now
get around the cost gaps by simply doing more services, and the
program has remained much the same as it has for 47 years.
A former colleague of mine in the U.S. Senate was Harris
Wofford, a great guy from Pennsylvania. He was a truly committed
liberal who served with great distinction in the Kennedy Administration as well as in the Senate. He argued very strongly that
American citizens should have access to the same quality health
care that his or her Member of Congress has. He argued that if it
was good enough for Members of Congress it should be good
enough for all Americans. Now, what each of you have and your
staffs and millions of other Federal employees, and myself included
as a retired Federal employee, is a health plan that does combine
the best of what government can do with the best of what the private sector can do. The Federal Employees Health Benefits Plan,
enacted in 1959, required that the Federal Government write the
regulations that set up the program and then pays up to 75 percent
of the cost of the health benefits. The beneficiary then pays the rest
based on a formula set by law. Over 350 private health plans are
offered under the program and 14 or so are fee-for-service and the
remainder are what is called premium support plans. Premium
support plans have the government paying the 75 percent, and the
government approves a group of private plans that employees can
choose from that are required by our government to deliver the
services. And all of this is implemented by the Office of Personnel
Management.
When I chaired the National Bipartisan Commission on the Future of Medicare back in 1998 and 1999 we examined several options on how to improve Medicare. No one, Republican or Democrat, on that Commission wanted to end the Federal Medicare and
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a strong majority, 10 of the 17, supported a new delivery system
based on market based premium support system, where for most
seniors the premium support would be set at about 88 percent of
the standard plan. Unfortunately, the statute created at our Commission did not require a majority to report, but a supermajority,
so our Commissions plan was never formally submitted to the
President nor to Congress. However, what happened next was that
then Republican leader Bill Frist and I developed complete statutory language, not an outline, not just a print, not just talking
points, but complete statutory legislation and introduced S. 1895,
which incorporated the fundamental principles of the Medicare
Commission proposal.
The core recommendation of our bill was not to end Medicare but
to rather restructure Medicare, using what each of you have today,
the FEHB program, as a model.
Under our bill beneficiaries would be subsidized by the Federal
Government for participating in any competing private or government plan offered under Medicare, including the existing fee-forservice program. The contribution amount by the Federal Government would be basedthis is importanton the national average
of the premiums for a standard benefit package, weighted by plan
enrollment and adjusted for risk and for geography, not some arbitrary growth rate like GDP. That standard benefit package would
be all services guaranteed under the existing Medicare statute, as
part of the legislation. Breaux-Frist set the overall Medicare contribution at 88 percent of the national average cost of that standard benefit package. And under our plan the amount of Medicares
contribution would be guaranteed. Also, importantly, under our
plan, for rural areas many of you represent, where competition is
less likely, beneficiaries would be protected from paying premiums
that are higher than the current Part B premium.
And finally we established the Medicare Board, and this would
oversee competition among private and government sponsored feefor-service plans and would be the equivalent of the Office of Personnel Management, which today manages the FEHB program. It
would exercise its authority by regulation and negotiate with the
plans. Overall the Commission estimated the proposal would reduce the Medicare growth rate by 12 percent.
One might ask the question, why tamper with Medicare at all?
Why change the system that has worked well for 47 years? Well,
I used to drive a 1965 Chevy II. I really loved that car. But I would
hate to be driving it today, 47 years later, and keeping up with the
maintenance of that car and I think none of you would want to do
the same thing. Perhaps a better answer, however, to that question
of why tinker with it now is a statement made by Rick Foster,
Chief Actuary for the Medicare and Medicaid services, just this
past week.
Mr. Foster said in the 2012 Trustees Report on Medicare, Without unprecedented changes in health care delivery systems and
payment mechanisms, the prices paid by Medicare for health services are very likely to fall increasingly short of the cost of providing
these services.
Some good news out there now is that in addition to the important changes made in the Affordable Health Care Act, ObamaCare
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made to those under 65 in the private insurance market through

exchanges and other things, it also included promising reforms,
moving away from traditional fee-for-service Medicare but still
under the fee-for-service program. Things like value-based purchasing and bundle payment systems, where CMS will try to realign incentives and reimburse doctors and hospitals for the quality
of the care they provide and not just the quantity.
Under the Affordable Care Act, CMS has already started testing
new and innovative payment and delivery programs through the
CMMI, the Center For Medicare and Medicaid Innovation. The goal
of all these payment reforms and demonstration projects is to improve patient outcomes while lowering the cost.
In the event that we move to a premium support model where
there is more price competition between fee-for-service and the private plans, the whole system is going to be better off if these promising fee-for-service Medicare reforms
Chairman HERGER. Senator, if you could summarize.
Mr. BREAUX. I am summarizing, last paragraph. I used to stay
that all the time, but they would never stop.
The great challenge today I would just suggest to both my Democratic colleagues and my Republican friends and colleagues, former
colleagues, is how do both political parties bridge the gap between
the different political philosophies and produce health care reform
for Americas seniors?
In 1965, a bipartisan Congress said that fee-for-service was the
best delivery system back then. Let me suggest that in 2012 the
best delivery system was still what is contained in the Breaux-Frist
proposal.
If I can be of any help to any of you, please call on me, and thank
you very much for your attention.
[The prepared statement of Mr. Breaux follows:]
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***TESTI MONY IS EMBARGOED UNTIL 9,00 AM FRIDAY,

A PRlL 27, 2012*"'*
Statement of The Honorable John Breaux
Subcommitrcc 011 Health, Committee 011 \Ways and J\'leall~
US House of Representatives
April 27, 2012
Chaixman Herger, Ranking Member Smrk and members of the Committee,

thank you for inviting me to testify 011 wh:a i~ both onl' of the mOSI
importam and at the same rime di\<isivc isslies of our dme - Medicare.
tel me say that J had the privilege of serviJ1g in Congress for 32 years, 14
in the House and 18 in the Senate. I fully understand the difficulties each
!\{cmbcr has in addressing what needs ro be dOlle in providing hcalthcart
[0 our nation's seniors, 1 have obscn'cd over tht, years some Dcmucr.Hs,
nOt all, have taken the position that in hcalthcare, the govemmcnt should
do everything and rhe private secror should do nothing. On rhe orhet ~ide.
there arc some Republicans, nO[ all, who argue the opposite - government
5hould do nothing and the private sector Hhould do it all.
~'l}'
opinion is thar in order to ever reach an agreemenr; Cougre~~ must

combine the best of what government can do with the best of what the
private sectOr can.
I would submit this is c..xactly what we did in creating Medicare Part O.
The beST of what rhe governmenT can provide is:
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I. Help pal' for rhe program.

2. Ser up the mechanics and structure of the program with standards
J. Make sure the companies do nOt scam the sys tem and can actually
deliver the product_
11
The private secror can:
I. ere:!.t!! compet.ition which lowC[s prices
2. Bring innnvat.ion and new produCTS to the market
3. Deliver beneficiaries choices to allow selection of the best plan for
them.
Our eurrl'm tvledicare program was signed into law b y Presidem Lyndon
J o hnson in 1965. The mo de! chosen to deliver those health benefiTs 47
years ago was the " fcc fo r service" mode!. Providers do the service and the
government pays the fees. To contro l cos t~ , the government 6xcs the price
for cveryrhing from bcdpan:l- to brain surgery. Providers now gC t around
the COSt caps by (loing more services and the program has remained much
the samc fo r 47 years.
A form!!r collc:lh'lU.: of mine in the United Stares Senate was Harris Wolford
from Penn~yl vania . Senator \X/olford wa~ a truly committed libel":!.1 who
sCfvecl with great distinctio n in the Kennedy ,\dministration, as well as the
Senate. He argued strongly that evef), American citizen shouJd have acceS$
to rhe S:UTIe {Juality health care that his or her Member o f Congress receives.
Hc argued that if it was good enough fot Congressmen, it should be good
enough fo r all Americans.
\'.:'hat each of you, yo ur ~t.1ff~ and millio ns of orher federal employees have
(and 1 ha ve a~ a retired federal employee). i~ a health plan that combine~
the b est of what government can p rO\ide with dle best of what the p rivatc
scctor can offer.
'nli~
Federal Employees HeaJrh Benefits Progmm (FEH B) enacted in "1959

re'luinxl that the federal govt'rnmcOI write the regulatio ns that set up [he
program and then pays up to 75% of the COSI of the healdl benefits. The
benefici:lr}, then pays the rCH based on a ff)rmulll set by la\v. Q\"CJ: 350
private health plans arc offerecl under the program - 14 afe fcc fo r service
and the remainder arc what is called premium support. Premium suppOrt
programs have the government paying 75% of the premiums :lJld approve
a select group o f private plan s that employees can choo$c from that arc
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12
required by our governmc1l[ w ddiver serviccs. All of chis is implemented
and enforced by the Federal Office of Personnel ~hnagemcnt (OP~'I),
\Xfhcn I chaired the national Bipani~an Co mmi~ sion on the ruture of
ivfedicare in 1998 and 1999, we examined several options on how to
improve i\kdicare. No one. republican or democrm, wanted to end federal
Medicare and a strong majurit)' (10 of the 17) supported a new delivery
system ba~cd on :l m:lrkcr b:l:;cd premium suppOrt system where for most
sen iors, premium support would bl' ~et at about 88%. of The standard plan,
Unforl'unatdy, the sratutc creating our Commission did not require a
majority to repon. bUi a super majority. so o ur Commission plan w'.ts nt.'ver
fomlall)' submitted to the P_resident or Congress, Howcvcr, what
happened next was then Republican Leader Bill Frist :lnJ I developed
complete St.'1tUT(lry legislation and introduced S. 1895 which incorporated
the fundamental principles of the Medicare Commission proposal.
Thl' corc recommendation of our bill was not co ~Ild Medicare, but rather
to rCSn1.1Crurc Medicare using wh:lt each of you have today, the FEH B
l)rogram as a model. Under Ollt bilL bCneficiari~s would be subsidized b~'
the federal governmenr for participation in any competing privnle or
govcrnment plans offered under J\kdicarc. including the existing Medicare
fcc for Service program.
The contribution amount by the fed eral government would be based on
the national ,,-"Cfage, weighted by plan enrollmcnt and adjusted for risk and
geography, of dle premiums fClf:l s tandard benefit package. Upd:ltes
would be based on actual health care costs at that time- NOT some
arbitrary growth rate like GDP. That standard benefit packabTC would be
"all sen'ices guaranteed under rhe existing tvledicarc srarutc."
Brcaux-Frist sel the ()vc11l.11 Medicare contribulion at 88% of the national
avt'rag(' COH of the standard benefit package. Under our plan, the amount
of Medicarc'~ contribution would be guaranteed. Also, importantly, under
our plan, in rural areas wherr: competition is less likely. beneficiarics would
be p[OtC!cred f[am paying premiums that arc higher than the current Part B
p[emlums.
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13
Finally. we established a _Medicare Board. T his board would oversee
competition among private and government sponsored fee for Sl:.rvice
plans and would be the equi\'alent to rhe Office of Personnd Management
which loday m:m:l.ges the FEHB Program. It would exercise it~ authoriry
by regulatjon and negotiate with the plans. Overall. the Commi~~ion
csrimated its proposal would reduce the l\{edieare growth fate by 12%.
Some good news is that in add ition to the important changes the
j\ffonbble Carc Act (ACA) made to tho~c under 65 in rJ1C private.
insurance market (through exchanges, etc) , it also included promising
reforms moving away from traditional FFS r\'[Cdicare, but still under -a fcc
for sen'icc program. Things like value-based purchasing and bundled
payment syStems where Cr-.-tS will try to realihY"J1 inccntiyes and reimburse
docror~ and hospitals for dle gualit}' of care they provide rather than the
quantity. Under the ~\Cr\. eMS has already started testing new and
innovative payment and delivery programs through the Center for
Medicare and Medicaid Innovation (CMi\"IJ). The goal of aU of these
payment reforms ~l1d demonstration projects in the AC,\ is to improve
patient outcomes while low('ring COsts. :tn the event that we move to a
premium suppOrt model wh!.:!fe therc is morc pricc competition be(v"ct.'11
FFS and private plans. dIe whole system would be betrer off if these
promising FFS i\ ledic:lre reforms in ,,\CA .....-ork.
The great challenge today i$ how do both political parties bridge the gap
between clifferent philosopbies and produce. healthcafe reform for
America's seniors. In 1965, a biparrisan Congress said fcc for service was
the best delivery system. let me suggest thaI in 2012, the best delivery
sys tem is eontaimxl in the B[caux-Frisr propo~al.
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Thank you for your attcntion .
14
Chairman HERGER. Thank you, Senator. Ms. Rivlin, you are
recognized for 5 minutes.
STATEMENT OF HON. ALICE M. RIVLIN, PH.D., SENIOR

FELLOW, ECONOMIC STUDIES, BROOKINGS INSTITUTION
Ms. RIVLIN. Thank you, Chairman Herger and Ranking Member

Stark. I am delighted to have the opportunity to testify on reforming Medicare through a premium support model. Medicare is a
hugely successful program that has dramatically increased the
availability of health care to seniors, increased the length and quality of life of older Americans, and greatly reduced their fear of
being unable to afford care when they need it. We need to preserve
Medicares guarantee of affordable health care for older and disabled people and make sure the program is sustainable as the
number of beneficiaries explode and upward pressure on health
care costs continues.
Medicare reform is not just about Medicare. Medicare plays a
crucial role in two of the most daunting challenges facing American
policymakers, the relentless increase and the proportion of the total
spending that Americans collectively devote to health care and the
unsustainable projected increase in publicly held Federal debt.
Medicare reform represents an opportunity to turn this large publicly funded program into the leader in increasing efficiency of
health care delivery for all Americans.
I believe that a well crafted, bipartisan bill that introduces a premium support model while preserving traditional Medicare can
help achieve these goals. I will focus my remarks on the plan that
former Senator Pete Domenici and I devised at the Bipartisan Policy Center, but it is very similar to the plan offered by Chairman
Paul Ryan and Senator Ron Wyden.
Our proposal would preserve traditional Medicare as the default
option for all seniors permanently. It would also offer seniors the
opportunity to choose among comprehensive private health plans
offered on a regulated exchange. These plans would be required to
cover benefits with at least the same actuarial value as traditional
Medicare and would have to accept all applicants and would receive a risk adjusted annual payment based on the age and health
status of their beneficiaries.
The regional exchanges would collect and manage the prices and
terms of competing plans within a designated region. And those
plans would include traditional fee-for-service Medicare as well as
qualified private plans. The governments contribution would be set
by the second lowest plan in the region, subject to their having sufficient capacity.
With more accessible information about cost and patient outcomes, cost conscious consumer choice will lead the providers to
emphasize preventive measures, managed care coordination of people with multiple chronic diseases and adopt more cost effective approaches to the delivery of care.
However, we dont know in advance what consumer driven competition will do. So we have introduced as a fail-safe, which we
doubt will be necessary, a cap on per enrollee government premium
contribution over time at the rate of growth per capita GDP plus
1 percent.
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15
There are lots of questions about how well this would work. One
is cant Medicare beneficiaries already choose among private plans
under Medicare Advantage? They can and a quarter of them do,
but Medicare Advantage wasnt properly structured to give full
competition among plans. And our plan we think would structure
the competition so that it actually lowered the rate of growth of
cost.
And people question whether there is evidence that competition
leads to lower cost and better quality. Actually despite its perverse
features Medicare Advantage provides considerable evidence that
competition works. The impression that it is more expensive derives from the fact that Medicare often pays plans more than the
cost of fee-for-service. But under our plan that would not be possible and the competition we think would hold plans down.
Finally, would older and sicker seniors end up in traditional
Medicare and raise its costs? This fear is based on the assumption
that risk adjustment cant work and rules against cherry picking
will not be enforced. But in fact we believe that these rules can
work, that they are working better in Medicare Advantage than
they used to and will work still better under a new system.
We believe that health care policy is far too important to be driven by a single partys ideology. No matter how the 2012 election
turns out the President and congressional leadership should strive
to find common ground on how to cover the uninsured, how to reform Medicare and Medicaid while stabilizing the debt. We believe
that our plan contributes to that end.
Thank you very much for giving me the opportunity.
[The prepared statement of Ms. Rivlin follows:]
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16
**'THIS TESTIMONY IS EMBARGOED UNTIL 9 :00 AM

FRIDAY, APRIL 27, 2012'**
i\ Bipartisa n Allproach to Reforming Med ica re
T ut imony or Alice M . Ri "lin l

T he
U rookin ~
Institutiun lind
S ubco l1lmith~~
Geo~c lown
on
Unh'crsi ty
1I ~II1th
Co nllnillcc on W IlYS li nd Means
U.s. IIOLLse or H: cllrc5fnlalivu

).' ridll)'. April 2?, 2012
Chairma n IIc rgtr lind Ranking Mcn, hc- r Sta rk:
la m delighted [0 have the opponunily 10 testify 011 n:fonning Medicare th rough ~

prell1iUlIl support mode1. Medicare is a hugely ~ucccssf\ll program that hilS dr~mMicaU~'
increased the IIvnilnbitity ofheft llh care to 5ell io l'5. increased lilt" I(.'nglh and qua lily of life
of older Americans, Dnd greatl y reduced rlleiT fear ofbcing unable to afford l'urc when
Ihey need it. We I\~ed 10 pl\'~rve Medkare's ~uanlluee of aITofllable In:"lIh \,:!II\' fur
older nnd diS3bkd people I1l1d make su", that the progl'llm is sustainable 115 the number of
beneftciaries elO.plodes and upward pn:,;surt un health care: costs continues.
MedicafC refonn is 110tjust aoout McdiClire. Medicart ply}s II nudal rolt in twu Clf th e
mCist daunt in., challenges fUclll!; American policy makers: the relentle~$ incrc,ne in the
proportion of lOla I s(X!nding Iha! Americans collectively dno\c to h(lIlth cal\: (now abuuI
III percent of ollr gross domcslic product (GOP) pnd rising); nnd the ullsuSlaillublc
prQjccLcd illcrtllSe in publicly he ld federal debt (now ahout 10 pc:fCenL of 001' and
rising). Medicare refoml prescnlS lite opportunity to tum this large publicly-funded
program into the Icader in increasing thc efficieoc), Clfllculth care delivery ror nil
AmcticDn5 - whether re<:eiving taft' \lIroh&h public or private plans - improving the
qllJ.lily of hcl1lth CHrt services. s low ing Ihe growth ofHlialhealth cart spending at tke
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I I am Indebt~d 10 t he stalf ClI tl1@ 81pattl~an Policy Center IOPC) and membef ~ of the OPC 's Task.
Force on Oebt Reduction for asslnaflce with Ihls T~sllmoflY . The views J)r~sented Me my own
al"ld should not be atlllbuted Itl i10V of Ihe lflS tltuUOns with which I am affiliated.
17
national level. and (by slowing the projccted growth of Medicare spending) reducing the
growth of fllture debt.
I believe that
well"cra lled bipanisan bill thm introduces a premium suppon model while
pres-.'rving traditional Medicare can help 3chirve these gua ls. Since there are
versions of premium suppan, I wi ll focus
Ill)'
~I'erul
remarks on the proposal of the Bipartisan
Policy Center's Task Foree on Debt Reduction, which I cochaired with rormer Senmor
Pete Domeniei (sec attachment). ThiS" plan is \ery sim ilar 10 Ih .. bipanisan proposal
pr~'SCntcd
b)' Chainnan Paul Ryan and Senator Ron Wyden in Decrmbcr. 2011.
fealUres <If tile Domeniei"Rh'lin Propos al
Our proposal would
pr~":Scrve
traditiOlml Medicare as the ..kfhul! optIon for all
~niors
permanently. It also would offer seniors thl!. opponunity to choose alllong comprehe nsive
private health plans ofiercd on a r.:gulated excha nge. Thcse plans would be- required to
rover benefits with
ttl
leastthc sal11e actuarial value
~s
traditional Medicare {including a
specificd packagc of ~crv iccsl. ...'ould havc to acccpt allapplicanlS (ab~olutc l y no cherry
picking allowed), ~nd would receive risk'arlju,ted annual paYl11l.'nts based on the age and
health status ofthcir b.'ntiic iari es. The regional exchanges would collect and manage the
prices and tenns or competing plans within ;\ desig.nated region (a metropolitan ar{'a or;)
rur-oJl area) tlrat would include traditional r~'C-rorservice (FFS) Medicare as well as
qualified private plans. The government's contribution would be se t by the secondlowest-priced plan in the region (subjel:l to the two lowestpric ... d plnns Ilaving sufficient
c>lp;lcity). Ikneficiaries who chose th ... lowest"p riced plan would gft money back and
those who chose more expensive plal)s would hnve to pay the difference.
With morc accessible infonlllltion about costs and palient outcomes. cosl-conscious
conSUlller choice- wi ll enhance competition amollg plans (including FFS Medicare) lind
will lead providcrs 10 emphasize preventive measures, IIlIUlage care coordi nation of
patients witli multiple chronic discaSC"s, and adopt more cost"ertective approaches to
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dc!h'ery orearI.'. We are confident dun this process will reduce the l"oJtc of growth of
18
Medicare sp<: nding.just as si milar market competition works to improw quality <Ind
reduce cost for virtual ly every other good o r service in our economy and others around
the world.
However, we do not know in adl'ance wh:n consumerdrilll;!n competition will do in the

next ten years to improve quality llild reduce cost for 1m)' good or service - <Iutomobiles,
computcr.;, haircuts, or (under nur proposal) health care. If you ask!.'d the Cnngn;:ssional
Budget Office (eIlO) to "scorl,!" the em'cl of market competition on the pric~"'S the
government must pay oller the nexl ten years to buy computers or automobiles, cao
would len yOIL th(ltthcy could not do so. e BO's response to scoring the effects of
competition 0 11 health
care
would he pn;:ciscly the ~a ll1C, for precisely the same
fCU:>Oll.
Therefore, as II fail-s.aic, our proposal would cap the per enron ce gOllernment premium
eontriblllion Oller time attlie rate of growt h ol' the per c<lpita GOP plus om:. percen\.
Although we consider thi s event uality unlikely, should the plans' pricing process result in
a higher rale of growth, [he additiOI131 COsl would be rdlcclcd in an income-Iested
premium. with ful! protection for low-income seniors against high.:r contributions.
Congress could. of C(luN(", ova-ride this premium increa~c, <Ind d.."Cidc 10 red uce
providcr lXlymcnts or incI'Case Ihe government contribUlion instead.
Some qu esliuns Ilbollt Ihe Domenici-Ri vlin apllroll ch
ell/! 'r
Medic(lre m'.llrjicioriC5 a/ready ChO(/.Wl (/I11O!!g pril(I/1!. pl(//~\' IIl/dcr Pari C fir
M edicoreAd''(11)/flge (AM!? They ca ll al1d about a quarter of them do. However, /.11\
proved more expensive to tl1l' trust funds than FFS Medicare bl.-cau5c it was not
slroc\lJred 10 providc incentives for compdilivc cost reduction and Quality improvclllelli.
Our plan would subsilillo MA :md prollide transparent cOlllp<:lition (lIl wgiollal
exchanges, where beneficiaries could realize benefits of choosing more cosl-c lTccti ve
plans. The gOllcmmenl would 110 longcr halle to pay ex tra to pri va te plans when FFS
Medical'': providcd lowcr ....."'Ost coverage (as is oHen tru c under MA) nod would not pay
more to prOllidc FFS Medicare when prillale plans oller th.: cafe for less (us it curtCn tly
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79937
79937A.007
does under MAJ.
19
We
~lieve
that the elle.:tiveness or competition in driving down costs und improving
outcomO:$ would be enhanc.:d by the trnnspar.:nty or c()mpt,ting on an exchange and the

structure orthe bidding process in our proposal. Benefit-iuries would pay more anenlion.
especially in areas where they oou ld save money, because FFS Medicare premiums
el(ceeded the sel'Ond lowest bid. Plans would al so h3ve more incentive to seek efficil.!ncy
whell the bidding mcchanis1l1 resulted in lower payments from the government tha n under
the pre.wnt MA system
(Ie :Idillinistr:ltively pt'gging payments to the cost of FFS
Medicare.
Is Ih.yc .t\'h/cncc 1/1(1/ CQmpNiliQ/J leads 10 IlJIrcr COSI (JI>(/ bCII~'-111/(/1ity? Actu ally,
despite its perverse femures. MA provides considerable evidence that CO lll peti tion works,
The impression Ihm MA plans are more COSIly on avernge derives from the fael th at
Medicare often pays Illorc to the plans than the cost ofFFS Medicare and that Illany of
them ofTer supplemen tJUy benefi ts. But recent M EDPAC annlysis shows that private
plans afTer the Medicare entitlement package ilselrfor the saine CQst a~ FFS Medicare
and HMO' s in MA cost less than FFS. Competition works besl in more densely
populilted urban arens. but Ihnt is " 'here most of the Medicare population lives. In fact. 88
percent of Medica re beneficiaries live in arct\s in which II bidding process like the one we
propose would produce a secondlowest bid below the current eosl of FFS Med icare. In
rurJI areas where FFS Medicare might fC main the only available plan, our proposal
would avoid any dislocalion forthose res iden ts, because it would retain tradit ional
Medicare as a pcmlunent oplion,
~'unhelm()re,
genemlmodel are too small 10 ha\'e the Same
although ex isting systems thaI follow our
k~\'ernge
over the en li re helllthcare market
as w(luJd Medicare, cvidt'11ce thus far is promising. Systems organized along Ihese lines
include- Ihe stale ('Illp loyee systems for Califomia and
Wi~eonsin,
and some employers
including Stanford University, The Netherlands has adopted a similar nmional system,
and cxpcri('ncc thus far is Ilworable.
WOII 'I older and sicker seniors elld l.p ill Iraditionol Medicare ami rui.~e il$ coSI? This
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rear is bascd on thc aSSlimption thaI risk adjustment c:m't work. and that roles against
20
chl:rry picking will nol be enforced. so thaI pril'ate insurers will find Ilays to shun the
elderly " 'ith the most-.:xpensive conditions. [n fact, howel'~r. risk-adjustment ttchniqucs
improved substuntially as reieV'Jnt datil and expo!ri.:nc.: accumulilted in MA lind other
progrn ms. and can be expe<: ted to improve more. Moreover. some he.lIth plans nN
developing elfeetive techniques for managing chronic diseases. such as diabetes, ;\I1d life
IlOW
actively \I)'ing to auracl paticnls wilh these risks. Finally, the Fedcrol Employees
H ~'ahh
Bcnefits Plan
demon~\r'JIcs
that an intelligently managed enrollment process c~n
give consumers free access to all plans. wi rhoUl plan underwriting or selection,
Won'l
f!JTort$ 10 $fJlIN=e COS/S ill MelliCiJre jll$1 sh{ft Ihem fa Ihe prim/e S-/Qr? Und er
the current system, with Med ienrc savi ngs achievcd largel y through simple Nductions in
reimbUfSCment ratto'S. cost shiHing has been a major coneen!, Howev.:r. our proposal is
driwn di ll'cn:ntl y. If competition works to produce lIIore cost-effccti~e delivery.
Medica re cn n be 1\ leader h.:re. Pla ns and providers thilt have incentives to serve their
Medicare patients more cost-efl'cctivcly will do the snme for their othel clients.
Why 110/ J f.'" I/O .... , IhO! {'mimi PrOleclioll WM A.OOrduble Care A"I ({'{'A CA) wurt, before
dUlilgillg Afl!dil.:'ll'f! jimher? I suppor1 the PPACA und assume most of its provisions will
be implemented - even if the Supremc Court makes il necessary to replace the mnndate
with other ways of cncouraging more pt.'Ople 10 buy health inslu-Jncc. The Center for
Medicare and Mcdicaid Innov31ion. the Patient-Centered Outcomes Research Insti tule,
and Accountable Care Organizati ons - all fC:lIures oflhe PPACA - can help \0 assemble
solid evidcI1Ce about wSI-effective approaches to deli vering health care. If the
Indepcndcntl'ayment Advisory Board (WAB ) funcliolls as int ... nded. ilwill dt'sign
regulat ions thm cncourap;c more cost-cffccti vc delivery of care ill traditional Medicare.
However, it rI,'moins to be sel'n how well these new illsli tu lions will pl'rfonn. We thi nk it
only prlldent 10 strength en compet ition BS an additi onal 1001, Under ou r proposal.
competing health plans all ovcr the country would have strong incen ti ves, not only to
impkment ilUlOl'lItil'e id';:$ coming out ofthe fedel'lI ll y-supported institutions crented by
the PPACA, bulto seck every possible wa y to provide highcr-quaJity care at a lower cost
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in their own local area. The PPACA IIIt.:mpls 10 I't:wllrd Medielll't: provid ers that Inc<:t th e
21
conditions set in regulations. Enhancing comp.:titi ve incenti ves to achieve suvings and
improve outcomes could prove the.- more em::ctive nppro.9ch. Our proposal is to try both.
How docs the Rya n-Wyden propos:1l differ from Dorn cni ci-Rivlin ?
The bipartisan refonn of Medicare proposed by Budget Comilliltee C hainnrul Paul Ryan
and Senmor Ron Wyden is very si milar to our proposal - aud signilicallll y diflcre!1l froul
C haimlan Ryan 's earlier proposal incorporated in the Hous" Buds"t ResolUTion passed in
201 L Unlike the earlier Ryan proposal. Ryan- Wyden preserves traditional FFS Medicare
permal)ently, proposes a biddi ng process on Medicnre exc hanges, sets the government
contribution at the Sl'Cond-lowcst bid, and has a fail safl! provision that caps increases in
the contributi on at GOP plus one pt'rcent - all features of Domcniei-Rivlin. Two
difTercnces arc worth noting. bere. Ryan- Wyden would pha~e in mort: slowly starting in
2022 and would ollly apply to new bt:nelieiari es, while we would start in 1018 or even
sooner. Ryan-Wyden also is more l1exible about what would happen if the cap were
brcaehed. suggesting that Cungre-ss
l11i ~ht
chuose among various kinds of reductions in
provider payments in addition 10 Ihe mCH n$-tcStcd premium increase In our proposal.
W hy is a hipa.r1i Sli n a pproac h necessa ry'!
We believe thaI health care policy is far too imporla!1l to be drivcn by a single part y's
ideology. Programs Ihm afTeet people's lives so intimately lIlust flow From a broad
bipar1isun COlIscnsus. The public's hea hh in5Uf"llnce covemge should not bounce around
unpredictably with each par1y transition in an
el~ction.
No matter how (he 2012 ek-.:tion
turn s Ollt, the prcsidelJl and congrcssional lcadership should strive to find common
ground both on how 10 cover the uninsured and how to refonn Medicaid and Medicare
while stabili zing the debt. Furthennorc. the American p.:oplc and the finnn eial markets
will have the !lIost confidence III Qur success, and in the oullook for policy stability, if a
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Medicare solution rests on broad principles that I)oth panics call accept.
22
Mo[',:avcr. the two parties'
com~til\g
ideologies clln both contribute 10 improving heulth
eare outcomes and reducing the growlh of costs. Republicans lend 10 rely on market
competition and consumer choice 10 produce results in the public interest; while
Democrats tend to rely on regulation. Republicans tend \0 distrust govcrmnem: while

Democrats tend
10
distrust profit-seeking in the private se<:tor. But Ilone of llS is certain
whm wiJl work best to redm:e the grcm1h of heahb costs, while improv ing health
outcomes. The premium support model embodkd ill DOlllCnici-Rivlin and Ryan-Wydcn
soxks to combine the tool s- of market competition and cost-effective regu lut ion in hop<:s
of Illa.~imi:.:ing the chances of improving health care for seniors at a SlistaiUlIble eOli!.
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Thank you very much for this opportunity to testify.
23
Chairman HERGER. Thank you very much. Mr. Antos, you are
STATEMENT OF HON. JOSEPH R. ANTOS, PH.D., WILSON H.

TAYLOR SCHOLAR IN HEALTH CARE AND RETIREMENT
POLICY, AMERICAN ENTERPRISE INSTITUTE
Mr. ANTOS. Thank you very much, Chairman Herger and Ranking Member Stark.
Medicare is a vitally important program but it is living on borrowed time. Medicares Part A trust fund will be depleted in 2024,
as you said, and the program faces $27 trillion in unfunded liabilities over the next 75 years. With retirement of 76 million Baby
Boomers over the next 2 decade the program will consume an ever
increasing share of the Federal budget unless policies are adopted
to bend the Medicares cost curve. Reform based on a principle premium support can responsibly slow the growth of Medicare spending and help set this country on a sustainable fiscal path. Such a
reform relies on market competition among health plans to achieve
high quality coverage at low cost. That is essential if we are to protect the Medicare program for future beneficiaries.
I will address four points about the design of a premium support
reform.
First, should traditional Medicare be offered as a competing plan
option under premium support? I think that is the most reasonable
course. Perhaps as many as 57 million beneficiaries will be enrolled
in traditional Medicare 10 years from now which is when most proposals will start competition under premium support. Traditional
Medicare will not disappear when premium support begins, even if
we do not allow any new enrollment. Moreover, traditional Medicare is likely to retain a stronghold in rural areas and other markets that are dominated by a few providers. For that reason we
must find ways to reduce unnecessary spending in traditional
Medicare in the near term as well as after premium support is in
place.
Premium support does not need to exclude traditional Medicare.
Premium support lets consumers decide for themselves which plan
provides the best value and gives them a clear financial stake in
that decision.
Second, will premium support shift huge new costs to Medicare
beneficiaries? Lets be clear, the Affordable Care Act already shifts
costs to beneficiaries. The law imposes unprecedented cuts in provider pay rates to generate $850 billion in Medicare savings over
the next decade. According to the Medicare actuary, these payment
reductions mean that 15 percent of hospitals and other party providers would lose money on their Medicare patients by 2019. That
figure rises to 25 percent in 2030. Large across the board cuts in
provider payments without changing incentives threaten access to
care, and that is a real cost to patients that is not reflected in higher premiums.
In contract premium support changes the incentives that have
driven up Medicare spending. Plans that hope to increase their
profit margin need to seek more efficient ways to deliver necessary
care rather than adding another test or procedure. There is plenty
of room to improve efficiency in health care, and plans that ignore
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24
opportunities to cut costs will lose market share and see their bottom line shrink.
There is also the market test in premium support. If private
plans fail to offer a good product at a good price, beneficiaries will
move to traditional Medicare which remains an option. This is an
important safety valve that ensures seniors will be protected.
Third, what index should be used to limit the growth of Medicare
subsidy? An index that ties Medicare spending growth to the economy, provides some budget discipline and helps with the CBO
score, but lets not fool ourselves into thinking that the spending
target is what produces the reductions in the cost of care. Efficiency and innovation in health care, in health care delivery determine whether Medicare savings can be sustained in the long term.
Finally, what other reforms are needed? We obviously needed
modernized Medicare, we need to make the program fairer, we
need to reduce unnecessary spending. That means we need better
information, clearer financial incentives and a reformed subsidy
structure that reinforces rather than undercuts efforts to slow
spending.
In my written statement I list a number of reforms. There are
many that need to be done. Certainly reforming the confusing
structure of traditional Medicares cost sharing to make it more
clear to people what they are paying would be a good first step in
giving people good information about their health plans so that
they can make good choices is absolutely vital.
So in conclusion, there is broad agreement that we need to bend
the Medicare cost curve. The argument is only over how to do it.
Premium support is not an academic theory, it has been effective
in lowering cost and enhancing value in the Federal Employees
Health Benefits Program for the past 5 decades and in CalPERS
since the nineties. A well design premium support program can
take full advantage of market competition to drive out unnecessary
spending and increase Medicares value to beneficiaries. It is about
time we tried it, and I think we can find bipartisan agreement
about moving forward.
Thank you.
[The prepared statement of Mr. Antos follows:]
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""TESTIMONY IS EMBARGOED UNTIL 9,00 AM FRIDAY,

APRIL 27, 20 12'"
-,
A
Statcmcnr
TO
Ame rican ElIlerprise Ins titute
{01' Public Policy Research
the House Commim.'C' o n Way~ ll1\d

Sulxommincc o n Httn lth
Me:ln~.
Premium Support Proposals ror Medicare Reform

Jmc ph R. Antos, Ph.n.
Wilson H. Tay lor S.-:holnr in Hcn lth Cart: lmd Ru ircm cm !lulk."
American Enterprise Instinut'
April 27, 20[2
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those of tft.> wahor II10ne (Iod do

of Ille Allieriwn Entnpme Insfi!ule.
rtsei11lun111Tf
r~prt'5<'nl thrur
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TIt.: t'IC",S exp1'dsd in this
26
Mr, Cbuiman, " ' r. Ran~ing Member. Ihank you lor Ihe oppotlunily to leSlif)' today
befort' Iht' House ('ommi1lee on Ways and Means, Subcommiuec on Health.
Medicare refoml based on tht' principle of premium support can rc:Iponsibly slow Ihe
gro\\'lh of program spending nnd help setlhis country on II sustainable fi~al path. Such II reform
n"Iies on market competition among health p lan~ 10 achieve high-qua li!), covemgc at the lowest
e051. Thnt is ess<:n1ial if"e are to protcet tiH: I\kdiellrc pmgmm for fmure beneficiaries.
The annual rcporl orthe Medicarc trustees issued earlier this wcck reminds us once again
thaI r..kdil.".tre is li\'illg 1111 borrowed time. Evell if the sub$t.1ntial reduelil)l\s in paymcl1ls to
health care providers included in the Affordable Care Act (ACA) art'- fully implemented and
Congress allillls the 32 ~rcen t rt'tiuclion in physician payments n"quired IIndt'r current law \0 8(1
throU~l in January, /l.k d i~are spending will con tinul! \0 grow al unsustainable rates. Mcdie9re's
Pari A tnlst fund will be depleted in 2024. and the progr~m filces $27lrillion in ullfunded
liabilities uver the ne;o;l 75 years. Witb the reli relllCnl of76 1l1illioll Baby Boomers over the ne~1
two decades. the program will consume nn ever increasing shllre of the f<!deral budget unless
policies are adupled to bend Medie~re's co~1 curve,
Traditional Mediean:'s uncapped entitlemtnl and fee- fOf-st:rviee iXlyment stnletun: is II
major caur.c of the rapid rise ofprosram spending. Fee-for-service payment promotes thc usc of
more. and UlOn" expensive. 5ervie"",, in II fragmented and uncoordillated dt'lil'cry Systt'Ul. That
resu l!$ in higher cost and poorer patient outcomes.
Premium supPQrt ehang,:,s that ;nttnlil'C by giving CQnsuml!rs a 5ut>sidy 10 purchase
ii-om 3 \\'ide selcction of competing health plulls olTering a core sct ofbclldits. In each
m8r~cl area. Ihc plan~ would ,ubmil bids 10 provide Ih., basic ocnclils 10 3 bendiciary Ililh
a\'erage health riSk. The ~ubsidy would be b;,s..'<i on lhe low bid. which under m~lly proposal~ is
defilled 3S the second lowest bid ulTered in lhal mmkl'1. To ensure alTordability, subsidies would
be higher for beneficiaries with lower illcomC$ or higher health risk.~.
il1sur~nec
iknciiciaries could tllroll in more e~p"nsi,' c plans, bUI any extra premium would be paid
soll-Iy by the beneficiary without addition"1 subsidy. That givu an incelllil'c to consumers 10
sck<:tl(!w'c r-c(!st plans, aod il giVCll8Jl illccnti"" to 1b~ plaoS 10 oegQliate lo\\cr prices with
providers alld improve lhe delivery of care, II1~teHd ofincrea.sing the volume ofserYites 10
increase pD)'IllCot. health plans "ou!d have ~ strong in1erest in providing ueccSS-1ry services in a
eost-c:flccti\'~ manner. Undcr premium supporl. more efficient health care delivery is rew~rded.
Ilot penalizcd.
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A number ofbip3rti!;:ln Medi,'are refomlS thm incorporate premi ulll support ill their
des ign h ~ve been mll'anced Ol'er !/le past J 5 years- including the Breau/t'-Tho mas pNpo!;:l1
developed for the National Bipartisan Commissi()n on the Future of Medicare, the O<lmcniciRivli.n proposa l de"elop;.'{] for the BIpartisan Policy Ctnte~5 ~Qt Reduction Tas~ Force and
n'cent proposals by Rep. Paul Ryan (RWis.) and Sen, Ron Wyd<11 (O-Ore).' E:aeh Qf tho~
propoSllIs ad<lTeSs\:s !on~s'anding problell1s tha1threa1en to undemline Medicare andjcoJXlrdil.c
the countl)"s fi!lC"JI fulurt,
27
My testimony ad(.h-e~SC$ fotlr key issues in designing a M~x1icare reform b:tsed on
premium Sltpport . Firsl , tile role oftr:Klit ional Medi~~re. 111ere are polillcal and pracl1tal
reasons to retain tmdilional Medic are 3~ a competing plan op. ion under p~mium ~uppo".
Propcrly stmcton:d, prcmium support would not f;l\'or any spec ilk plan over another.
Second. COS1 shifting to bcllCficiaries. Conccms have bccl\ raised tha! premium su pport
would impose dmmDtic~lly higher costs 00 Medicare beneficiaries. ThaI ignores lhe eosl shilling
Ihal is already in place IInder Ihc ACA. which rt.-quires Jargc across-the-board CUIS in provid~'1'
paymentlhal Ihreaien Access to eare--a reaJ COSt io pal ient~ Ihol is not renecled in hig.her
premiums. It also ignores-the <kar inccllliv~tlml heahh Jllan s woultl h:lVc 10 keep COSIS low, and
itlnkes no account of the availability oftmditional Medican: as a safety valve for bcn\.'ficiories
should private plans [,1;1 10 perform.
rhiru. indc.~ing tile gI"O\\1h nf Mcdieare 's subsidy. Moot proposals include ~n ind.'.... to
limil fUlur" Medicare s~nding, "hich prod,,~es "scorea ble" budgel $:lvings. The ehoi~e oran
inde .... i~ important, but efficiency tlnd innOVAtion in health can: delivery d~tenn;nc wh .. thcr
Medicare savings ~An
sustained in the long tcnn ,
oc
Fourth, :ldd;tlonal reronns. Premium supp.Jrl by ilself will not save Mcdicare. More
immcdiale refonns are needed 10 modemi7.c tradilion~! Medicnre lind produce addilion~1 COSI
s,1Ving5 as wc Iransilion 10 full premjum support. Our fisc~1 crisis is 100 urgent and Medicarc's
problems arc 100 comp!cx to delay actioll.
Trndi fionlll i\1rdic lI~ lIS An Oprion
Should trudilional /!" Iedicate be retained as a plan option under premium support. or
slu)Uld it be phas;ed OUI? Lasl years House budget resolution included a prt'mium support
propos.allh31 closed newenrollmcnt in tradilional "kdicare b<:ginning in 2021.~ Indi vidu:tls
turning OS fmm lhat year o n would have 3 ehoice of private pl~ns. bUltraditionnl Medicare
would not be available.
Rc~pondin!J. 10
concerns, the Hou se budgd resolution pasSl.'ti Ihis year indudt.'s lraditional
be"cjieitlri~, including tnos.-, who
become newly eligible for Medica,,:. Although there are problems with eilher opprOllch,
retaining Il"3diliooal Medicare as an option;> thc IuOSI reasonable course.
Mcdi~arc
as a plan oplion under pr"m ium su pport for all
Somc conservatives criticize this change as backsliding. They c01"T<X'tly sce the
tmdilioMI Medicare: pmgmm in ils current form as in-efficielll and anticom~tilive, But
pretending thal lhe progrnm will dis,1ppcar in \0 y~ars n18i<cs it unlikely Ihat Congress would
ll1 ak., important but difficult decisions nceded 10 sct lradition31 ~\edicnre on a !is.:-aUy sus lninnbl~
p:uh.
The reality is that traditional fc,,-!or-S/,'rvjcc ~Iedicure co uld have somc 57 million
enroUees in 2023. when premium s uppon would begin under Ihe proposat J Ev.,"O withoutlbe
current automatic 3ssignJl1~11l of newly-eligible belleficiaries to tntdil ional Mcdic:lrt', that
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28
program could ~11l>\in a dominant force In Ihe hea lt h seclor for d~ades if seniOrs eonlinue 10
enroll. Prudenl refomlS. discussed below. are uced<'d to make lraditional Ml-di care less waJIll'ful
in the IIcar Icnn as well as aftcr premium suppnn is in placc.
Tradilional Medicare is likely to rdain 3 slrong hold in ntrJllocales and other markels
Ihal arc dominaled by:l small number nfprllviders. In such cases, health plans moy have liule
bargaining power 10 ncgotime lower prices wilh providers. llowevcr. private plans may he- able
10 rein in lheir opcrnliog COSIS Ihrough care eoordinnlion and olher efficiencies Ihal are outs ide
100 reach o r lradil ional fee-for-~rvie.' Medicare. In Olher markels whl're Ihere is less
eoneclIlrulion and more compclilion among providers. private plans arc: likely 10 h~ve n
tompctiti~e advantage over lrudil ional M~dieare. The)' shou ld be belief able 10 eOIHra~1
selectively in sueh markets, ~Ilowin!!. thcm 10 o ffer lower-COSI oplions 10 seniors.
The object,~e o r' premium s upport should not be 10 dri ,'e QUllraditional M('il ieal\'.
In sl.:ad. premium support should be dcsigllcd 10 allow COII~lImers 10 decide for Ihcmselves which
plan provides the besl val lie. and give them a e le~r fin~r>Clal slake in Ih~t dcclsion.
Cnst Shirring ~nd the Muket Test

Will premium suppon bas.:d on full eOlnpclition among privale plans and truditionai
Medi ca re work? SOlO. critics argue Ihal premium .uppon simply shi fts thc COSI of car.;, 10
seni ors wilhout improving Ihe emdency of heal th care delivery. ThaI ,,"'oul d be lrue only if there
"ere nO room 10 Improve heallh care efticicnc)' or if plans ignored opportunities 10 cut eosts.
increase markel share, and improve Ihe ir bollom line$.
Under ~ premium-support syslem. an addiliormllcSI or procedure would nOI generJle
additional rcimbufSt'melll Ji"oIn Ihe governmcllt Mosl Medic are benefkiaries li ve 011 fi".'d
incomes nnd nre nOI in a posilion 10 pay subsmntially more . thaI real it)' will force health plans
and providers to coordinate palienl care and lind othl'f cmcicncies rath .. r Ihan perpetuating Ihe
currenl fra!!.menled sySlcm. In a well-org8ni~ed markeL bencliciarlcs will be allracted 10 health
plans Ihat provide Ihe mOSI effccl ive care at Ihe 10weSI price.
The nltemntivc oftercd by the ACA is nOl appealing. The law imposes unprc:ccdtnted
ellIs in provide r paymcot rates to generate S850 bUlion In Medi,al'l: savings OVCT Ihe nc"t d(....,ad~
According 10 Ihe McJicare aelualy. Ihose payment rc:duelions mean Ihal 15 pcrc:elll ofhospilals
and oIhcr Part A providers would lost." moncy on their Medicare pat ients by 20 19: Tha t figure
ri ses 10 25 percent in 2030 and 40 percent in 2050.
Under Ihose eircum slances. providers \Vill have 10 lVilhdra,v from th~ Medicare program.
causing grow in g p",bkm~ for seniors n<'Cding cal'C. Impeding ace.'Ss III ,:are imposes n"al costs
on patieolS Ihal arc nOl fdlecl~d il] higher p.... mlums, but Ihey repT\.~nl a cOSI sh\fl nevertbel es:;
Retaining fee forscrviee Medic~re as a plan oplion in premiul]I support creates a salely
va l-'c if the private phHl S arc Il'lahlc 10 rein in COS IS. Iflhe critics are correcl.traditional
Medicare wou ld be Ihe lowcosl plan in evcry market Beneficiaries would move back 10 Ihe
lraditional plan when Ihe ellSl dinerence~ bec~nte apparent
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29
Wit can be rt:3wnably contidenl thai cven the heahh stur will re~pond to clear
In 1l1l' unlikely .."'~nt tha t deli,rer)' syst~m imprnvemenlS fail tn
materialize. beneficiaries wuuld nul be fOf'l.'cd into poor-perfanning plans,
e~onomic inc~nti\'es_
Lim iting Prognlm SJ'l';' nd ing

Medicare reform propns.1ls that rely on premium suppon include;) n external constroint
on program spending, Iypi<'ally limiting lht annual gro ..... th in the subsidy 10 some tconomic
index such BS the gross nmionol prodntt (GOP). The propos.11 in the I-Iousc I3tldget Resolution
fur Ii>eal yt"Jr 2013 SCIS the limit at Ihe GOP growth mle plu. 0.5 perrcnl. which is idcnticallO
Ihe liscal target SCI in thc President's 20 13 budgcI for the Independ ent Payment Advisor)'
COl11mil1ec (IPAR). TIle Wyden-Ryan proposal and the. Oomctlici-Rivlin prnposal, as well as the
IrAI3 under currenl law, usc GDP plus ] percen!.
The diffe\'Cnce ~tween those Iwo growth rates can be substantial lrom a budget scoring
perspective. If the growth in Medicare: outlays was lil1lih~d using GDP plus I sinning in 2013.
spellding fur ben"'lils Ihrough 1022 would IOlal about 57.7 Irillion .~ Th~1 is equal \0 spending
under CSO's current law baselille (\lhieh iileludcs the IPAB gro\l1h target in its projections).
The trnjC<.tul)' of spending is lower Ihan und~r tht: basc lin ... huwel.. r. whkh suggt'Sts thai GDP
plus I ,voltld y ield oct budgCl savings in su~qllent years. Usiog GOt' plus 0.5 reSllliS in .1bollt
$180 billion ill budget !ilIvinh'1i through 201::. and considernbly 1110re in Imet" y..ars.
lhe target t:an bI,' r':llcheted up or down to achieve any leve! uf St:Ol1.'~tblc $livings
dC\Tlltnded by political circumstances. Indeed , this type ofnscal confrol is oflen included in
refonl1 propoSllls to ensure lh:'ll
produces a "good"' score. Bul that docs not in1Ply lhat
future Coug.resses will enforce the outlay Jimit or IlInt such a lituil is appropriate under fuwn'
circumstance.. (hatlUc dinicult to predict. Dete rioration in the underlying health statu~ ofthc
Medicltre population, for example, cou ld drive up necessary spending even when eltre delivery is
cfficieltl.
eso
Despite that utlcena ;my. it is uscful \0 include a spending I3rgcI in Mcdicare rcfonn
proposals. The SlIstainablc Growth Rate (SGR). \\ hich is intended to limit Medicare physician
spending, is an instructive t:.xamplc. Although Congress has ovcrridden the SG R repemedly over
tbe paSI 9 ycars, p.lymenl rateS ha,rc grown l<'s5 11Ipidty than they Ilouid have with th c lllJ1ation
adjustment built ;lI1olhe fonnula. Without the SG R, it is possihle Ihm Congress wuuld have
allowed larger annual updales.
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Huwever, we should not fool oursd\"e~ intu believing IImt spendi ";! targets by th .. !m;eI\"~s
will produce savings that t:on be mainlUined o"er the long tenn. Whitt mailers most are the
economic int:cmives broughllO bear by premium support, which encourage benet" decisionll\aldng un the pan of both consumers and health care providers. Ifcompelition cal) keep
pmgmm spt'nding wilhin the bounds sct by the targltts. thffi the l~rgdS 3r~ nOi nect:ssary except
ns a budgetary mnemonic device thDt reminds us Ihat rcsources are limited. evcn for the most
urgent ofpmgl".\nlS. Ifno!, then the targd; would el'entuall y huv~' tn be ;n~reased unless a public
30
consensus had been reached that other spending priorities took
least at the n1(lfgin.
pr~c~dence
over h~alth 1.'3"', at
The Resl of MtdiCllF"t' Reform

Addi tional refonns are necessary to modernize Medicare. make the progrllln fnirer. and
.... dul~ uuni.'Ccssary ~pcnd ing. In addition. some eh3nges in Medicare ndes would greatly
enhance the eITC1:til'eness ofcompctition among health plans Jnd make tmdilional Medicare
mure compt'titivl' in 101::1.1 morhts.
To help slow /\Iledicare ~pending growth whiit- providing greiltcr flll onciol help til those
"ho are most in need. we need bener '"fomm\ion. clearer financial Incentives, and a refomll::d
subs idy smlcture that reinforees rather than undercuts efforts to 51('11\' spending. Sueh reform
proposals include~
Es loh lis h clear cosi-shad ng inetn lins for bent liciAricS. Separate Part A and
Pari B deductibks. coi nsurance nnd e(lpaymen t requirements that vary aero:l$
difl"renl types of S<!",ice~. and arbilrnry gaps in coverage (such as the limit on
lifetime hospital days) mllke it impossible for belleflcillries to know what their
costs will be. A :single dl-ductible covering ~lll'arl A and Pan B services with a
uniforn> co insurance raIl.' applied 10 nil covered services, similar 10 the dcsign nf
most private insurance. would help clarify for beneficiaries whal they an: likely to
pay.
Makc cO~ I -s h~rin g r~q "i rem~ nl ~ inctlme-s~n s ilin. Medical\": cIIl1\'ntly reIMC$
th~ p",miums thaI beneficiaries pay for Pan Band P:trt O. In addi ti on. dual
eligibles and olher low-income bc.~neliciaril'S rcc";vc addilional ~ubsidics Ihal have
the eITecl ofincom<.<-re!:uing benefits. This principle should b<.> exte nded by
inc ....asing cosi-sharing requi .... ments for higherincomec beneliciaric~. Any
specific dollar amount of CQst-sharing has a grcalN impact on low-income
beneficiru-ies. lucollle-sensit ive cost-sharing would [nnre efftttiwly promote eo~
awareness aeross Ih,- iacome dislribuliou.
l nlr(ldu(l' Irue i n~ u"'dnee proteclion inlO Medicar\' benefit s. Elimin8ting
limilS on inp.1tient days nnd udding covernge lor cata~t rophic c!1penscs would
provide protl'Cti<~1I against high an d onen unexpected costS.
R~(l\'H Ihe cOSlnf induced uliliutilln from s landalon ~ Med igufl insllr~ rs.
Supplemenlal coverage pays Medkare deductibles and coiru;urancc, which largely
~lj",inaIl"S financial in~~nlivl'S for COn!IC r"~liw C31"l"" on thc p"~rt ofbuth patiClllS
and providlTS. Medigap plans do lIot ahsorb Ihe cost of the additional usc or
~rvices that results, which arc paid by Medicare os primary insurer. (This is nOI
an issuc for Medicare Advalllage plans. which provide primary covcrage lIS \\"ell
as any odditional benefits for 3 fixed per-beneficiary government payment.)
Requiril\!:I supplcmenlal plans I<l d~rl"Jy higher prugranl 1.'0515 would trJnsfcr the
additional COSI from ta.~payers back to those who purchase and benet,1 from
Medigap plan~. All alternativc appwach wo"ld esdudc Medigap C<lVCI"Jgc for the
first $500 ofa senior' s eosl-shllring and limit coverage abo~e thai to less than full
paymen!.6 The objective ofthi, propositI combini.'t! with tile three precl'tling ones
VerDate Mar 15 2010
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31
is 10 impn)"~ lraditiooal Medicare so Ihallh~re "OIJld b<' lillie nct'd fo.bt-nelkiarics to purchase supplemellta l insurance, bUI !lQt \Q diclate how Medicare
bcJ1enci~rle~ deddc 10 spend Iheir 0"11 money_
Offer cure coordimuion $fr\'ins 10 bcnclici:l ries \\-110 need it. Traditional
Medienre could improvc palient outcomes and potentially reduce cOSt by
provid ing care coordination 10 hi gh -risk \)t>ncliciaries being In:alcd by multiple
physidaus and other pfflvldcrs,7 I f used by patients ffie<>tiug appropriale m.. dical
crileria. such a SCT\'icc would help minimiJ.:c unnecessary t<:-stillg. ~mcrgcllc)' room
usc, and avoid~ble hospital admissions,
Reform Medicare's .,ay menl s)-$Icms, The onl:!oing threa! of massive paym<'nt
cutS to physicians under the Sustainable Growth Rate should be repl~ced with a
sustainab le payment policy based on the principl~ uf shared saer ificl', N~w
paymenl approachcs should be tested that can promote effecti"e and effieien l
C:lrt', II win be u('cessary to limiumy paymC!l1 incn:-ases unt il a new payment
mechanism has iJ.oC!l de"clop..-d , Similarly, other paymenl refonns- inc luding
blmdled payment. and compdilil'c bidding approochl,'s for spcc inc servicnsl1o\lld be devdopcd and t<:SK-d for their POI~ntiaJ illlj><lct ou cost an.! patient
outcomes.
Impro\e thr benefkiary purcha si ng e~pcrie nee, Although the Medicare
prol:\r~m o ffers lools to help beneficiaries n13ke their decisions about cnrollin~ in
traditional Medicare or in an MA plan , as well as the choice ofa I'art 0 plan far
tho!\\: who OPI for tl'3dilionnl Medicare, IhOSt' tools an:: limitl'd. Beller infonnation
is n~.... ded on HII plan combinatio'lS availahlc to '-""I<' iici:lrics, including 3clli~1
pr~!1liums trulh,'r than rangc~J for Medigap plans, Information is also !lCt'ded on
the likely olll-uf-pocket eosl that;\ beneficiary would incllr in the eveOI of~n
unexpected high":05t changc in health status , Beneficiaries nl't'd 10 know what a
pl'lIl choice will ",ali), L"()Stthem, induding both predktable ~o~ts \premium~) and
unpredictable costs (cosi-s harin,g ami olll-([f-ue\I'Ork cxpcnsesJ, Improving thc
insurancl: "e~change" funct ion is ~:5sclllial in D premium ,uppart s),sh,'m ,
Such policy improvemems willt3~e time to implement. but Medicare will cominllc 10
exert increasing prcssttI'C un the fedct'JI budgct. Other actions to offset those c{)Sts include:
In crd~ Medinre pn::m;IIms, T~ I-':!rt B premium eurrct'\tlycov<'Tli 25 percen)
or the COSI of Ihe b.melit. In the shun tenn. thl: premium could be rni;.:d 10 35
pe"col, with highcr prcmiums paid by higher income btucficiaries. One.; p"rt A
and Part B bt-ncfi t; 3n: combincd \U Sinlpli fy thc c()5l-shariug Structure, a
premium lh~1 )XI}~ for an lIppropria!C share oflhe combincd beucfit wou ld make
se n~,
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In e~(',,* lhe eligihility ag~ 10 67_ This proposal prollidl'S an incenlil'e lo r ".-,nion.
tu remaiu in the I\or~ force longer, I\hich would in~rease Ihe 31110tLIllufpayroll
tll~ re~iplS and some\\hal reduct' Medicare spe nding,
32
Conclusion
The deb.llc. over Medicare refoml is abom means, nOI <'"ds. There is broad agre~m"'''1
Ihal Med icare spt'nding is on an unsustainable trajectory thaI threaten s 10 crowd out other
priorities elsc"lIerc in the budgl'l. There is broad agreement thaI Medicare's pcrfonnance in
dclil'ering s.::rvices to older America ns enn and should be improved, TIlere is srent con troversy
ove r how 10 ensurc Ihal se nior.s continu~ In receive high-value health care at a price Ihal is
afTordable 10 I h em and 10 la~ paycrs.
Irwe ever bope 10 bend Medicare's eosl curve, "' c InUSI cI'3ngc lhe finattc ial incentives
that dr;\'c progl1lm spending to inerensingly una lTordnhle levels, A well-designed premi um
suppon program can take fu ll ~dv~nmge of market competition 10 drivc 0 111 unnecessary
spending and increase M~~iCllre' s va luc III beneficiaries. In n properly slmelllred m~r\.;et.
beneficiarics wonld have inecntiv<'s to scck services from cost-efTective deli l'cry sy~lI:m s and
providcrs WOU ld hal'c incen lives to operate eflicicntiy.
The alternative approach relies on ti!l,hter .-egulation ~nd cuts in provider paymerlt I1IICS
lVithou t ch,Ht girll; the u"d~rI)'i l1g r~'e-ror-S<'rvice incentives that have driv~n Medicare spending
to unprecedented !evels. That is ultimately sclfdc fe;lt ing. stiflill~ pri"at ... se~tor ~re3t ivhy r~th~1'
th:'!n channeling il low~rd sysl~m-lVide imptov<,ment.
The need for M~d ieare refonn has never-i:>een more urgcnl , or more c lear. Premium
suppon is nol an academic theory. It has been eflective in lowering costs and C1th:mcing val u,"
for Ii\'(' dc.::~des in the Fcdcrn! Employees I leahh Benefits Program and since the early 19905 in
the Ca lifornia Publi,' Employee~ Retirement Sysl~m .1 It <'an IVOr\.; in Medic:'! ...., bUI .mly ifwc
tHke Ihe timc 10 get il right.
Josc'IJJr Amus i . lire Wi/Jonl!. Taylor S~hol(/r in Hc'ullh Can' and Re/irememl'olic), ar tile
Amerioon c nlerpri.I'1: InSlilllle. fie "r'Ni(jIlS~\' served as 11r~ As.<is/(jlll DireclOr Jur fltaith ",ul
1I11mon Rt'sQIIIT/!$ at 111<, CO>lgre~'~ii!l/{/1 8lUl;,-r1 Offict'. and he i., curren/ly a member ufCBO's
pane'l of Ilealll! advisers.
'Sen. John lI ..... UK .nd Rep. al iI lloom .... " 1I"ildln ~ 3 Ikner Medk.",
ll iponlsan CommlOS;Qn 011111< F\!1"",ofM..Jk.r<:. Moreh 1(0. I
1"11< Dctol Reduction r.! ~
"
.,
"
lhe lIudg.'. '-Tilt Path IQ
.,
If
'1
~ M"rt b20.1 () IZ.
(II ,
"
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33
John I ) Sh.ll and M, KOnl {,I;:m~".., "Projecl<J M~dk:a,. ti.~p,,,,d;l"res ... 1<1.. an JII"Slr~I;'~ Sc<n.rio wllh
AI~mati"" Paymenl Up<la ,,,,, IQ Modioa", Pro,ldo",," COnlcrs for MIlea .... nd ~k<llc-"ld s.:"'k~j.. Ma~ 13, 2(lII,
I>nr~"l'~.m~,St"J~~'f\.. I M1U>nd;!iIo""I(ojI<l$!!.l 1 1'BAJ'c'!!!"\'~<~,"!i9,rJf.
'''U1i1of'H 3kula,I''1l using CIlO'5 eslimOied Gl)r i"'''lh .. ,~ of~.7 I"'~n' be'''"",n 2()12.nd 2022 ami """,II.,.,
,pc!1dinge..<lIrr>oles from C UO's M.... h 2012 M.dic.", Elo~lil1<' , Cf;\O",.j ",~,os ,t>;l, MIitJ ... oU1la}'~ for benef\I>
in 20 I J "i ll _qu,1 $5'16.8 billion (IK'I of lile 54.6 bi ll]oo dollu I\"d"cli~n d.... 10) ' he $elluesler 111 for in ,be RWI9'1
Conl",1 ACI) .
R<du"" II",
S..,.s"'.Jo<- U.tem,. n and Sen. "rom C<>bum.""
[~blI ,
- I i ,'
It
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34
Chairman HERGER. Thank you, Mr. Antos. Mr. Aaron is recognized for 5 minutes.
STATEMENT OF HON. HENRY J. AARON, PH.D., SENIOR

FELLOW, ECONOMIC STUDIES, BROOKINGS INSTITUTION
Mr. AARON. Thank you, Mr. Herger and Ranking Member

Stark. Also special greetings to Congressman Price, with whom I
have had the privilege of working in the past.
You have my written statement and I understand it is going to
be entered into the record. I would like to begin with what I think
is the central issue that divides those of us who are opposed to the
premium support idea from those who are in favor of it.
I think all of us recognize that there are reforms to the existing
Medicare program that could improve its operation. All of us would
like to see cost competition play an enhanced role. All of us would
like to see delivery system reforms that result in better quality and
lower costs. And we hope they will work, but maybe they wont. If
they dont, who bears the risk of costs rising faster than projections?
Under traditional Medicare those risks are pooled broadly across
the population and over time across all Americans. Under premium
support those risks are shouldered by Medicare beneficiaries who
will be faced with higher out-of-pocket costs themselves. That is the
choice I believe, the fundamental choice that needs to be made in
determining a position on this issue.
Now some years ago Bob Reischauer and I, as you noted, coined
this term premium support and we did so with respect to a particular plan, which was more than vouchers, and actually incorporated one of the features that Senator Breaux mentioned just
now, that the index to which benefits are tied should be a health
index not an economic index. And I would note that none of the
proposals now under discussion meets Senator Breauxs standard
in that respect.
In the 17 years since Bob Reischauer and I put this idea forward,
I have changed my mind and I would like to just list a few of the
reasons why I have changed my mind and I think I would urge you
to consider them as well.
The whole environment of health care policy has been transformed. We wrote in the wake of the failure of the Clinton health
reform effort and at a time when projections of insolvency of the
Medicare Trust Fund were becoming steadily worse and were very
near term. Both of those elements has changed. And in particular
the passage of the Affordable Care Act means we have put in place
a key element of the premium support idea for the rest of the population; namely, health insurance exchanges. We are finding those
are difficult to implement. They are politically controversial. I
think they will succeed and those problems are solvable.
The Medicare population is vastly more difficult to deal with
than the population served under the Affordable Care Act. We
should prove that the Medicarethat the health insurance exchanges work, get them up and running before we take seriously,
in my view, calls to put the Medicare population through a similar
system.
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35
The regulatory climate has changed. It is far more hostile to the

kinds of regulatory interventions, pretty aggressive regulatory
interventions that Bob Reischauer and I thought were essential to
the functioning of a premium support plan.
We at the time said that no premium support plan should move
forward until risk adjustment was good enough to discourage competition based on risk selection. At the time, like Alice, we thought
oh, well, it is doable, some time it will happen. Alas, it hasnt happened yet. A recent study has shown that the risk adjustment algorithm used under Medicare Advantage actually has increased the
degree of risk selection that occurs through Medicare Advantage.
We are not there yet. When we are, that would be the time to consider whether premium support merits consideration.
And finally, the idea that competition is going to save money, as
an economist I really want to believe that. I got my degrees in that
and I was pledged to like markets, I really do. The evidence to date
is not encouraging. The higher costs of Medicare Advantage are not
attributable solely to the extra payments that are made to them,
nor is it attributable to a selection of patients. After controlling for
all of those factors, Medicare Advantage plans are more expensive
than is traditional Medicare. Furthermore, even Part D drug benefits which have come in below cost have come in below cost by less
than other drug spending outside of the Medicare system has come
in below the projections that were made at about the same time.
So I want to believe that competition will work and save money.
The evidence is not supportive at this time. And given the risks involved it seems to me important to continue to spread the risks
from rapid growth of health care spending across the general population rather than to impose them on a very vulnerable group of
people, the elderly and people with disabilities.
Thank you.
[The prepared statement of Mr. Aaron follows:]
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36
"'THIS TESTIMONY IS EMBARGOED UNTIL 9:00 AM

FRIDAY, APRIL 27, 2012'"
Stat<:' '''tnt of
Ilrnry J . A"ron'
he forl! the
H Il,, ~e W"Y~
an d MellM l'lc"h h S nh eo"'m i!l e~

27 April 20 12
Mr. Chnirm,.u:
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50
Chairman HERGER. Thank you, Mr. Aaron.
Senator Breaux, I think it is important to get this out of the way
right at the beginning of this hearing. Do you think premium support will end Medicare as we know it as some have claimed?
Mr. BREAUX. I think the whole debate politically about ending
Medicare as we know it, I think we want to change Medicare. We
want to keep Medicare. I think we want to improve the delivery
system. I think everybody is committed to having the Federal Government provide adequate quality health care for our Nations seniors. But we dont have to do it under a delivery system that was
formed in 1965. Just like my Chevy II, things have changed, things
have improved, so our recommendation is that we keep Medicare
of course, it is a great program, but change the way it is delivered
to our Nations seniors so they get a better deal, a better product
at a better price.
Chairman HERGER. So then you would say that premium support does have the potential to improve the Medicare program and
shore up its long-term finances by harnessing private sector innovations?
Mr. BREAUX. My answer would be yes, but you dont have to
take my word for it. Look at the things we have done in the areas
where we implemented premium support. Medicare Part B is a
classic premium support system. The government helps pay for it,
and they help set it up with the private sector competing for the
right to deliver the product. Let me suggest it is a program that
is more popular today than the Congress that wrote it, and I include myself in that group because I was there. The seniors love
it.
Second, the second example is even better, every one of us up
there and me have a premium support Federal Employees Health
Benefits Plan, that is a classic premium support. People can choose
from, they can continue fee-for-service if you want to stay there,
but the Federal Government sets up a premium support. We have
the Office of Personnel Management guaranteeing that everybody
that participates can deliver the product and negotiate for the
price. That combines the best of what government can do with the
best of what the private sector can do. So dont take my word, look
at the two times we were able do this, and I would think you would
agree it works very well.
Chairman HERGER. Mr. Antos, I think it is important for all of
us to focus on what the Medicare program is facing today. The
Medicare trustees released their 2012 report just this week. When
do you expect the Medicare hospital insurance trust fund to go
bankrupt?
Mr. ANTOS. Well, I rely on the trustees, who are the Secretaries
of Treasury, Labor, HHS and two public trustees, and they rely on
Mr. Foster, who is the Chief Actuary. If current law is actually implemented, which means major cuts in payments to hospitals and
other Part A providers, then their projection is that the Part A
trust fund will run short of funds by 2024. However, under other
assumptions it would be much earlier than that. And in fact under
the so-called high cost assumption that the trustees also present,
it is 2016.
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51
Chairman HERGER. So even with the projections that we were
to make these major cuts, which most dealt very much we would
make to hospital, what with the bankruptcyyou say 2024, what
was the bankruptcy date in last years Trustees Report?
Mr. ANTOS. 2024. So some people say that weve held our
ground. Another way to look at it is we are 1 year closer.
Chairman HERGER. In other words, we are 1 year closer, as you
mentioned, to this looming, addressing this looming problem.
The trustees stated that Congress and the executive branch
must work closely together with a sense of urgency. In other
words, now is the time to address significant reform of the Medicare program.
Do you agree with this assessment?
Mr. ANTOS. Yes, sir, it is absolutely vital.
Chairman HERGER. Ms. Rivlin, the plan you worked on with
Senator Domenici is similar to the 2013 House passed budget as
private plans that compete against traditional fee-for-service Medicare.
Can you please explain how this competition will control costs,
not only for the beneficiaries enrolled in the private plans but also
for traditional Medicare?
Ms. RIVLIN. Yes. On a structured exchange where you can really see, where the consumer can really see what the choices are, the
plans that participate would offer their wares and they would have
to agree to take everybody who wanted to join their plan and to
give actuarially equivalent benefits to fee-for-service Medicare and
they would be competing directly with fee-for-service Medicare.
There are lots of new innovations in how you treat people, including people with chronic diseases and there is evidence that plans
can offer better services and bring down the cost of treating Medicare beneficiaries. We believe that would happen and that through
the bidding process the cost of the plans would maybe not come
down, but not increase as rapidly as they otherwise would. And
that fact that the government contribution would be slowed would
be of benefit to everybody, including those in fee-for-service Medicare.
Chairman HERGER. In other words, quality could be higher,
service could be higher, but the cost could be more?
Ms. RIVLIN. Yes, we think that would be true. Fee-for-service
Medicare would compete and would probably get better over time
because otherwise people would leave it. But there is a lot of evidence that fee-for-service doesnt coordinate care very well. I am a
Medicare beneficiary. I watch this happening and the coordination
among providers is terrible. If you are looking at comprehensive
capitated plans, whose responsibility is to take care of everybody
in that plan, you are likely to get better results.
Chairman HERGER. Thank you very much. Mr. Stark is now
Mr. STARK. Thank you, Mr. Chairman. Mr. Aaron, would the
Medicare Trust Fund become insolvent sooner under the Republican plan to repeal ACA?
Mr. AARON. The ACA contained many provisions that extend
the life of the Medicare Trust Fund. It was a major improvement
in the financial status. There can beis grounds for legitimate de-
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52
bate about whether every element of the ACA is going to be enforced down the road, but there are additional revenues and a host
of payment reforms that are designed to lower cost with scorable
savings and others that while not scored by CBO contain virtually
every idea for payment reform that analysts have come up with.
Mr. STARK. I have a letter from CMS that indicates that without the ACA the trust fund would expire 8 years earlier, and I
would ask the chairman to make that letter a part of the record.
Chairman HERGER. Without objection.
[The letter from CMS follows: The Honorable Pete Stark]
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DEPARTMIlNTOF .mALTH &: HUMANSIiRVICES
CAIS
Cen",,,, fo. Meditare& M!'dic.id 5ervlC1':'l

Room 352G
200 IndependenC<' flV1lnue, SW

Wa~hin,to", DC 20201
Office ofCommunkalw ...
CMSNEWS
FOR IMMED IATE RELEASE
Mondlly, April, 23,1012
Contact: CMS Office or Mcdia Re lations

(202) 6906'45
I\l cdica r r St3 b le, Bu t RCI, uires Sire ngtlwning
Th e Medic4~ Trustee's Report released today shows that the Hospi tal Jnsuran~e (HI) Tnlst Fund
is expected to rema in solvent unlil 2024, the same liS 11I5t year's est im atc, hut acti on is needed 10
5e'Cure its long-lerm fil1u re. In 20 11 , lhe HI Trust t' und c)[pendirures were lower than expected,
Without the Affordable Can: Act, the HI Tnisl Fund wou ld e)[pire 11 years C/lrlier, in 2016. The
11lW provides importanlWols to con1(ol costs over the long rlln slich as chartging the way
Med icurt: pays providers to reward efficienl, (.jua lity care. These effort s to reronn th~ he"dlthcare
delivery system tire lint f.1ClOred inlO the T nmees projettions liS many or the in ilialives are just
launching.
"The Tru S1ees Repon tells us that while Medicare is stable fot now, we ha\"!: a lot of work ahead
or us to gu~r:mtee ils future," sa id Acting eMS AdminiSlrtllor Marilyn T~venn~r. The
Affordable Carc Act is giv ing CMS the ability to do thi s work, with tools to lower costs, fight
rroud. and change inc('ntives SO tl1at Medica re pays for coordinated. qual ity cate and nOt Ihe
number of serv ices."
The report projects that the Supplementa ry Medicallnsur:\ncc (SMI) Trust l'und is IinlUlci all y
bal an ced because beneficiary premiums and ge neral revenue fin ancing arc set to cover exptC ted
program costs, Spe ndin g from the I'art B account of the Sf- II trust rund grew al an average rate
of 5.9 percent over the lnst 5 yenrs.
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Sfvlll'art I), the Medicare prescription drug program, had an average growth rate or7.2 pt'"I"'Ccnt
over the la~[ 5 yca t$. Cost projttt ion5 for f>art I) 3re lower [hall ill the 20 I J Trllstees report , due
to loWer s~ndi n g in 201 J and greHlcr cxpectl.-d use of gell!'r;c drugs .
54
III expenditures hD~e exceeded income ~nnually since- 2008 ~nd are pmjC'(:ted to continue doin!!:
:Klunder current law in all flliure years. Trust Fund inle-rest earni ngs and asset ~dcmptions are
required to cover Ihe difference. HIISSCIS are projected to cover annual deficits through 202J,
... ith assel dcpletion in 2024. After a~set depiction. irCoogn::ss were to take no fUl1het action.
proje-clcd III Trust Fund re~enuC' woold be adequlte to cover 87 percent of estimated
expenditur~ in 202~ and 67 percent ofproje.:tc:d CO$\.S in 2050. In pntctice, Congn:iis hilS rn:~er
allowed DMcdiclln! trust fund to exbaust ]" assets,
Tile finnncial projections lor Medicare rcfleci subslontio l COSt savings resulting from lhe
Allbr<lable Care Act. but alsu show thaI

contin uing COSI growth.
furth~r
Dction is
n~eded
to address the progrMl's
The Medican: Trustees are Treasury Secretary ami Managing Trustee Timothy F. Geithner.
I lealth and Il uman Services SC'(:relary Kathleen Sebelius. I..aOOr !kcrd3ry Hilda L. Solis. and
Socil l $e1.:urity CommiSSIoner Micl\ac! J. ASlrue. Two ocher members arc publie rcprc:sc:matives
whQ life Bppoinled by the Presilknl SUbjectlo confinnation by the Senale. Charles P. BlahOlls III
and Robel1 D. Rei sc:haucr bcgllll serving on September 17, 2010. eMS Acting Administrator
Marilyn II. Tavenner is designatcd as Secretary of the Board.
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The repon is avail3ble at: htlps:l/www.cms.sov/Re oortsTr\.!SlFu .. d$/dowJllo~ds/!r?012 .pdt
55
Mr. STARK. If we had vouchers, or whatever you want to call
premium support things, the Medicare would stop being a defined
benefit plan and become a defined contribution plan, would it not?
Mr. AARON. That is exactly what I meant in my opening comment about who bears the risk if costs rise more than are anticipated.
Could I inject one comment which I think is important?
Mr. STARK. Please.
Mr. AARON. The statement has been made a couple of times
that Medicare is the same as it was 47 years ago, that just isnt
true.
Mr. STARK. You are right, I remember the change.
Mr. AARON. It has evolved in a number of very important ways.
It has pioneered in payment reform with the DRG system with respect to payment. And as various people have noted, it does contain
in one form or another, we may like it or not, the options for individuals to choose among a large number of competing private
plans.
Mr. STARK. I have always suspected it was Republicans, but you
know these guys who march outside with the billboards over them
saying the worlds going to come to an end. They have now crossed
that out and say that Medicare is going to come to an end in 2024
or whatever12 years. I can remember when those signs said it
was going to end in 1 year. And I can remember years when the
trustees report said we had 20 years.
But the fact is that to change the existingthe life of Medicare
costs relatively so little to the population at large, I believe that the
figure to extend the solvency of Medicare beyond the 75-year target
that people have talked about would cost less than say a 3 percent
total increase in the premiums or lifting the cap or doing a host
of those types of things, so that it hardly seems unless you so
strenuously object to anything that sounds like a tax or a fee,
which many of my colleagues do, but if you are willing to ask the
public who will benefit from this plan to pay a reasonable amount
over their lifetime, I see no reason that it cant be extended forever
without hurting job growth or putting the country further into deficit. Does that make sense to you?
Mr. AARON. Yes, it does, but I would modify it in one direction.
I havent a clue what is going to happen in the health care world
in 50 or 75 years. What is science going to produce, what will be
the impact on longevity? In my view, trying to look 50 or even 75
years ahead, with respect to health care, pensions are different,
with respect to health care in my view is a fools game. And it was
a bad day when the actuaries were required to look 75 years ahead
in the case of health care. Look 25 years ahead, that is quite a long
time and there is a lot of uncertainty within that. Over that period
you could close the Part A trust fund gap with an increase in payroll taxes of .35 percent each on workers and employers, or more
cost sharing on some Medicare beneficiaries, or additional payment
cuts through what we would hope backed up by improvements in
delivery, which is one of the goals of the Affordable Care Act.
So I think the idea that Medicare is standing on the brink of a
dangerous precipice for as far ahead as it is reasonable to look is
simply incorrect.
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Mr. STARK. Thank you. The 75-year target doesnt bother me
much, but I will come back and ask Mr. Herger, he will find out
what it is like. Thank you, Mr. Chair.
Chairman HERGER. Well, I would agree to a degree we have a
tough time estimating what is going to happen next year, let alone
5 years, 25, 75 years, but one thing we do know, 10,000 Baby
Boomers are now going on Medicare every day and that is something we are aware of. And again we have to hopefully in a bipartisan way work together to solve this so it does remain stable for
our children and our grandchildren.
With that, Mr. Ryan is recognized.
Mr. RYAN. Thank you, Mr. Chairman. You know, I hesitate to
say this, but, Dr. Rivlin I think I agreed with everything you said
in your opening statement. And the reason I hesitate is every time
I say something nice about a Democrat it gets them in trouble,
they get viciously attacked. So in light of Mr. Starks opening statement and comments, I am considering making really nice comments about you. See if I can direct it over from Alice to you. So
I will be working on that.
Look, there seems to be this attempt to undermine premium support and how it came to be. Lets remember that it started as a
Democratic idea. We have the grandfather of the original idea here,
the author in Congress of its last iteration here. And so there is
clearly room for the two parties to talk to each other about this
issue. If we could just calm down a little bit, we might be able to
save this program.
Recently I worked with Ron Wyden. I know that is a name. I
probably got him in trouble right there saying that.
Here is what Ron Wyden tells mefirst of all I think if we want
real lasting Medicare reform in my judgment it does have to be bipartisan. So here is what a Democrat, Ron Wyden, tells me: Democrats cant support a proposal that does not have an ironclad Medicare guarantee. It must maintain traditional fee-for-service as a
viable option. It needs to guarantee affordability for the Medicare
consumer and protect the low-income. It must have strongest consumer protections for seniors and aggressive risk adjustment to
protect the marketplace.
So this is what a Democrat in good standing and Member of the
Finance and Budget Committee in the Senate tells me are sort of
the essential principles for premium support to move forward.
That seems hardly irrational to me. That, to me, strikes me as
these are ideas we should talk about with each other and there is
plenty of room for conversation with one another, and we ought to
have that conversation. So I think we need to put this in perspective.
This is a program that is going bankrupt. We have the actuary
come here all the time, whether it is the Budget Committee or the
Ways and Means Committee, telling us providers are going to leave
the system, they are going to stop seeing Medicare beneficiaries,
the trust fund is going bankrupt. All those things are known to us
now, and it is just so much smarter given that 10,000 are retiring
every single day to get ahead of this problem and prepare the program so that it can be a guarantee that is not only there for todays
seniors, but for tomorrows seniors.
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57
There is one thing, Dr. Rivlin, that you convinced me of from all
our conversations over the years on this, that we modified our plan
for this, and that is competitive bidding. It seems to me a far
smarter way to set the rate system. Give me a quick synopsis of
why competitive bidding is superior, what are the attributes to it,
and how you propose to set it up, the second lowest plan bid and
the like?
Ms. RIVLIN. Yes. I think competitive bidding among plans, including fee-for-service Medicare, in a regional exchange, and by regional, we mean a metropolitan area or a large rural area, how
this would work is the plans would offer their plan and bid on the
opportunity to serve Medicare beneficiaries with the same benefits.
And the second lowest bid would determine the government contribution. If you chose the lowest bid plan, you would get the
money back. If you wanted to go higher up the scale, you could.
You could choose a more inefficient plan or one that offered additional benefits for higher cost.
But most people would look at how can I get these benefits at
a cost that I can afford. And the government contribution at the
second lowest bid would then mean if you are in fee-for-service
Medicare, you would have the option, if that plan was higher, of
moving to one that cost you less and getting the same benefits.
There would be parts of the country where the fee-for-service
plan might be the best plan and you could stay there, or other people in other plans could move there. But it seems like a good bet
for offering seniors comprehensive services at the best possible
price.
Mr. BREAUX. Can I add something just really quick to that,
Congressman Ryan. And that is the point that in some rural areas
you may not have competition, so you have to take steps to protect
rural areas where there may not be any competition. And we did
that in Breaux-Frist by saying that no beneficiary would have to
pay more than the current Part B premium for his standard plan.
So you can take care of those areas where there may not be sufficient competition to really create a competitive model.
Mr. RYAN. Five minutes goes fast. Thank you.
Chairman HERGER. Thank you. Mr. Gerlach is recognized for 5
minutes.
Mr. GERLACH. Thank you, Mr. Chairman.
Dr. Rivlin, looking at your testimony and specifically quoting you
to say I believe a well-crafted bipartisan bill that introduces a premium support model while preserving traditional Medicare can
help achieve these goals, and then you go on to say that the
Domenici-Rivlin proposal is very similar to the bipartisan proposal
presented by Chairman Paul Ryan and Senator Ron Wyden in December of 2011.
So as a result of that testimony, I would take it then you consider the Ryan-Wyden plan to be a premium support plan, is that
correct?
Ms. RIVLIN. Yes, I do.
Mr. GERLACH. Okay. And since the Ryan-Wyden plan was incorporated into the House Republican budget and passed a few
months ago, therefore that plan as passed by the House is a premium support plan, is that correct?
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Ms. RIVLIN. Yes. I think there are some differences between the
plan put in the budget. A budget resolution is just a budget resolution. It isnt a draft of a Medicare law.
Mr. GERLACH. Correct.
Ms. RIVLIN. So it is a bit elliptical. And I would stick with my
statement that I support Ryan-Wyden.
Mr. GERLACH. As I think of the word voucher, I think of a
situation where government would provide a payment to a private
citizen, either cash or some sort of check form of payment, and that
citizen would take that and then purchase a product or a service
with that money received from the government. Is that a typical or
rational definition of what a voucher is?
Ms. RIVLIN. That is what a voucher means to me, and premium
support as we define it is definitely not a voucher. You dont get
a check from the government, you get a choice among plans and
the plan gets a risk-adjusted payment, a payment that reflects your
age and health condition. And you dont even know what that is
as the individual bidder, as the individual beneficiary. That is between the government and the plan.
Mr. GERLACH. So the Domenici-Rivlin proposal was not a
voucher program, correct?
Ms. RIVLIN. No, it was not a voucher program.
Mr. GERLACH. And the Ryan-Wyden proposal was not a voucher program.
Ms. RIVLIN. Not as I understand those terms. No.
Mr. GERLACH. Thank you so much. I yield back.
Chairman HERGER. Thank you. Mr. Thompson is recognized.
Mr. THOMPSON. Thank you, Mr. Chairman, and thanks to all
the witnesses for being here.
I am a little heartened actually. There seems to be a lot of agreement. Everybody agrees we need to fix Medicare, we need to make
it work, and so that is the best news I have heard on this topic
for a long time.
I would submit, Mr. Chairman, that it might be helpful as we are
looking at this if we had a plan in front of us. We have heard a
lot of criticism about Mr. Ryans plan. We have heard criticism
about the Ryan-Wyden plan. We have heard those who are proponents of that suggesting that maybe it is not what the critics say
it is. It would be good if we had a plan. We could actually see the
details of that plan and be able to get down in the weeds and look
at it. Until that happens, we are just going to maybe be spinning
our wheels.
But I do know a couple things for sure. I know that as I travel
my seven county district, that includes both rural areas, Senator
Breaux, as well as urban areas, I hear a lot from the people that
I represent about Medicare and what they think about Medicare.
And I hear them tell stories juxtaposing the Medicare they have
today vis-a`-vis what their parents or grandparents had, and it is
clear, and I hear it all the time, they like what they have now with
Medicare. They like that.
Now, I hear criticism of Medicare. I hear people say dont cut my
benefits, and I also hear people say keep your government hands
off my Medicare, which is one that I always kind of chuckle at, because I guess everyone hadnt gotten the memo yet that Medicare
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59
is, in fact, a government program. But I have never heard anybody
say please, please, go to a voucher system, do away with my defined benefit program. And I dont think I am in the minority
there. The Kaiser Family Foundation did polling on this, and I
think 70 percent of the people agree with that.
I think we really need to keep in perspective the fact that providing health care to seniors and to people with disabilities isnt a
huge money maker. It is not a huge money maker. And I think
that it is important that we note, and I am glad that Mr. Antos
pointed out the fact that he puts great belief and credit in what
the trustees say. I want to reiterate what Mr. Stark said. The
trustees just said that accountable CARE Act lengthens the life of
Medicare by 8 years, and the CBO has said that if we put in place
my friend Paul Ryans proposal, they project that the total health
care spending would grow faster under that proposal and for the
typical 65-year-old, there would be an increased cost between 50
and 66 percent.
Mr. Aaron, could you comment on the effects to society of health
care spending growing that fast and what would it do to the, not
only health care, but to the greater economy?
Mr. AARON. I dont think there is a lot of difference among the
four witnesses on the fact that rising health care costs are a problem in this country. They squeeze public budgets, they squeeze private compensation. For that reason, systemic health care reform is
the key to moving ahead. I think there is a serious risk of trying
to screw down on the costs of just one element, even a large and
significant element such as Medicare, while not attending to the
rest of the health care system.
For that reason, I think that the key now, the most important
thing to do now is to move ahead with systemic health care reform.
The law of the land is the Affordable Care Act. Nobody I think regards that law as perfect in every way. We are going to learn new
things as it is implemented and we will probably change it down
the road.
But the first job is to make, to the best of our ability, to make
that system work. To the extent that we do that, we then should,
in my view, be open minded and willing to come back in future
years and consider whether changes such as the ones that are
being proposed here today should be enacted and implemented. But
I think now is not the time to do that.
Mr. THOMPSON. Thank you. My time is expired. I yield back.
Chairman HERGER. I thank the gentleman, and I just would
like to emphasize that as our witnesses pointed out, the trust fund
is going bankrupt in 2024. The trustees indicated it was going
bankrupt in 2024 last year. That means we have 1 year less than
we did a year ago. So this is something the sooner we begin on a
bipartisan manner working on this, and not using hopefully scare
terms like voucher. I dont know of anyone except a few people
on the other side that are using that term. The purpose of this
hearing is to talk about premium support, which is a bipartisan
suggestion on how we might be able to fix the system and preserve
it. So I would just like to make that point.
With that, Dr. Price is recognized.
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Mr. PRICE. Thank you, Mr. Chairman, and I want to commend
the chairman for holding this hearing, and I want to also recognize
and commend the chairman of the Budget Committee, Mr. Ryan,
for his work within our conference in educating people about the
need for reform, but also the positive nature of premium support.
I also want to thank each of the panelists. You all have put really a lifes work into many things, but not the least of which is positive suggestions and reforms for our health care system. As a physician, I can tell you that folks are hurting out there, not just patients and not just doctors. There are real challenges in the current
system that we have.
By way of clarification and to make certain that folks understand
that our proposal is a guaranteed proposal for seniors, it is stated
in all of the communication that we have. It is also stated in the
legislative language. It is a guarantee. So seniors need to appreciate that what we are trying to do is save and strengthen and improve Medicare in a positive way.
There has been some talk about what is Medicare going to look
like in 25 years, in 75 years, what the finances are going to be. I
want to share with you just what the current system looks like out
there in the real world.
The status quo is clearly unacceptable. There are new Medicare
patients. We talk about 10,000 folks reaching retirement age or
getting on Medicare every single day. If you are in a community
and you are currently a non-Medicare patient reaching Medicare
age tomorrow, and you are currently being seen by a physician who
does not see Medicare patients, the challenge that you have in finding a doctor to see you as a Medicare patient is huge. The difficulty
of new Medicare patients to find a physician seeing new Medicare
patients is massive.
The physicians out there are going crazy with this current system. It doesnt make any sense at all, and it is more and more onerous, more and more difficult to be able to just care for patients.
One out of every three physicians in this country limits the number
of Medicare patients that they see. One out of every eight physicians in this country sees no Medicare patients at all. That is not
a system that works. So we need to find a positive solution, which
is what we have been trying to put forward on our side of the aisle.
Ms. Rivlin, I was encouraged by the tenor of your testimony and
commend you for the work that you have done in the area of premium support. You mentioned that your proposal differs some from
the Ryan-Wyden proposal, and when I got to that area of your testimony, which wasnt in your spoken testimony but was in your
written testimony, one of the areas that you differ with the RyanWyden proposal is that you believe we can move to a premium support system for seniors sooner than is in our proposal. Is that correct?
Ms. RIVLIN. That is correct.
Mr. PRICE. And would you expand on that? Our concern was
that if we didnt what we call grandfather the grandfathers, that
we would not only take political heat, but the challenge of moving
in that direction that quickly would be too great. Please help me
understand why you think we can move there sooner?
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Ms. RIVLIN. Because we preserve traditional fee-for-service
Medicare as the default option. I mean, it does grandfather anybody who is in it, and it is a permanent option. If you reach that
age you are in it, unless you opt into something else. And we believe that the changes that would take place in the competitive bidding are substantial challenges, but they could be met by, say,
2018. We will have some experience in setting up exchanges under
the Affordable Care Act by then, and there is no reason not to start
sooner and let everybody have a choice.
You can view this as an improvement on Medicare Advantage
that makes the competitive biddingintroduces competitive bidding and makes Medicare Advantage more accessible and better,
and if you do it that way, it is not such a big deal.
Mr. PRICE. I want to thank you for that. And we will go back
and scrub our numbers, but I want to thank you for what hopefully
will be the genesis of a new found bipartisan opportunity to move
forward and save and strengthen and improve Medicare by providing for those choices, but guaranteeing that seniors have the option of remaining on the current Medicare.
Mr. STARK. Would the gentleman yield? I happen to be a fan
of his bill to get rid of this idea that if a physician doesnt take
Medicare, they are out of the system for 2 years. I join with him
in trying to see that we get that changed, because that doesnt help
anybody. You are to be credited for seeing that and trying to
change it. Thank you very much.
Mr. PRICE. Thank you, Mr. Stark. I may fall into the category
of Mr. Ryan, though. If I start saying nice things about you, we
may all be in trouble. Thank you very much.
Chairman HERGER. Mr. Kind is recognized.
Mr. KIND. Thank you, Mr. Chairman, and thank you for holding
this hearing. And I want to thank the witnesses for your testimony
here today.
Senator Breaux, this is always a delight to hear you and your
comments. But just for the record, I still have a 68 Chevy Malibu
convertible that I love to drive around. And it is one of those cars
where you can get under the hood and do your own tune-up and
oil changes, and you dont have to be a computer whiz to do it. And
my guess is that if you asked the typical senior in Medicare, they
feel kind of comfortable with the Medicare system right now, and
they think it is essential to the quality of their life. They want to
see improvements made, but they also dont want to see it decimated.
I am one of those dwindling breeds here apparently in Congress
these days, a moderate, centrist Member of Congress trying to find
different pathways forward, hopefully in a bipartisan fashion, to
address the challenges of our time, and I cant think of a bigger
challenge than the dysfunctional health care system and the impact it is having not only on peoples lives, but on our budget and
our national finances.
I have been encouraged listening to a lot of your testimony because there appears to be a lot of agreement on the panel today
that a lot of the tools that we put in place in the Affordable Care
Act need time to move forward. Delivery system reform, so we get
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better integrated, coordinated care leading to better outcomes; payment reform so it is value-based, not volume-based.
In a lot of respects, this hearing and this discussion we are having is premature, and Mr. Aaron and I agree. I think the Affordable Care Act needs a chance to move forward to see if this stuff
works before you can actually have a serious conversation about a
voucher or a premium support plan, and who ultimately is going
to bear that risk.
But I have always been interested in just three things when it
comes to health care reform: Better quality of care for a better
bang for the buck, and making sure that all Americans have access
to that type of care in this country. And how we get there is something that we have to continue to talk about.
But one of my concerns with the Republican budget proposal and
their voucher or premium proposal is the risk in and who is going
to bear it. But a bit of a parochial concern that I have from the
State of Wisconsin, we have traditionally historically been one of
the lowest Medicare reimbursement States in the entire Nation.
We share that with the Pacific Northwest and some other regions.
And under their proposal, apparently the rates will get locked in
at the lower of either the current fee-for-service reimbursement
rate, or the second lowest plan in that region, which would guarantee in Wisconsin that our providers are locked in at the lowest
Medicare reimbursement rate, which they are struggling to live
under today, which tells me that they are going to have to continue
to cost shift the inadequacy of Medicare reimbursements on to the
backs of businesses large and small, on to the backs of private
health care plans.
Mr. RYAN. Will the gentleman yield?
Mr. KIND. In a second, so I can make my point.
This will not only continue the death spiral that our health care
providers are experiencing in the State of Wisconsin, but the death
spiral that businesses in Wisconsin are facing with rising health
care costs because of the cost shifting that is currently impacting
them, making it harder for them to compete, not only at home, but
globally. And it does not make sense that we go down this road,
not until at least we find out whether delivery system reform and
payment reforms actually have a chance of working.
I have tried in my way to work in a bipartisan fashion in this
Committee. Mr. Aaron, you pointed out that it is crucial that these
exchanges have a chance to move forward and show whether or not
they are viable or not. I have been the author in previous years of
the SHOP Act, which was the basis for these health insurance exchanges, and every year I introduced that proposal, I had an equal
number of Republicans and Democrats on that bill. We put it in the
Affordable Care Act and my Republican colleagues ran for the hills.
I was one of the authors with Mr. Blumenauer on reimbursing
our health care providers for counseling on advance directives. And
every year we introduced that bill, we had at least five or six Members of the Committee, Republican Members, who were on that legislation. That was put in the Affordable Care Act and that turned
into death panels and my Republican colleagues ran for the hills.
So having that bipartisan conversation is difficult to have when
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you have principles or issues that we had previously agreed on that
suddenly divide us today.
I agree with Mr. Thompson, Paul, that to have a serious conversation, we need a plan. We need words on paper so we can actually see, because we all know, and I think everyone on this panel
would agree, that the devil is in the details on how any type of premium support or voucher plan is ultimately structured. And we
dont have that.
I talked to Ron Wyden too, and sometimes I feel like I am talking
to two different people who are embracing the same type of plan.
What Paul understands what the plan would mean, and what Ron
Wyden understands sometimes they are talking past each other.
So unless or until you put something on paper so we can truly
analyze the impact of this what this is going to mean, all this is
theoretical.
Mr. RYAN. If the gentleman would just yield kindly, I will send
to you and Mr. Thompson the plan that Senator Wyden and I coauthored with our signatures, and I will send it over to your office.
Mr. KIND. All right. But, again, I think, Mr. Aaron, I hear from
you, and John, I think you testified too, that it is important that
these delivery system and payment reforms as part of the Affordable Care Act right now have a chance to continue to move forward. And if, for some reason, the Supreme Court or this body decides to overturn everything, I think that is just going to lead to
an absolute state of chaos right now in the health care system that
may take a generation to recover from if we go back to square one
again.
Chairman HERGER. Mr. Pascrell is recognized.
Mr. PASCRELL. Thank you, Mr. Chairman. Thank you to the
panelists.
I have heard, and I said many times health care reform is entitlement reform. Folks on the other side dont want to hear that. We
havent touched entitlement reform in the health care bill. I think
that is utter nonsense. One-third of the health care bill is devoted
to Medicare and Medicaid. It is very specific about the recommendations, and those are recommendations that we should be
considering if we werent trying to suffocate this legislation before
it breathes fully in the next 2 years.
Not only are we going to reduce costs for Medicare, but also the
Health Care Act reduced costs for beneficiaries, unless you dont
agree with the CBO numbers. The majoritys attempt to repeal reform and turn Medicare into, lets not use a voucher program, lets
not use that word, I call it the more-out-of-your-own-pocket-folks
program. I think that will hurt beneficiaries. And there is no doubt
about it, this is going to mean more money out-of-pocket. No one
has denied that. No one.
So according to the CBO office, the Republican budget will dramatically cut spending in Medicare for new beneficiaries by more
than $2,200 per person per year. That is what the CBO says. And
we conveniently use the CBO when they support our position, and
then we tell them that they dont know what they are talking about
when it doesnt support our position. And starting in 2030, by
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$8,000, by 2050. If you want to talks about the future, lets talk
about the future.
We dont have to scrap the current system. In fact, as we are sitting here today talking about strengthening Medicare, the health
care reform bill is already hard at work actually testing new payment and delivery systems that will lead innovation not only for
Medicare, but for the entire health care system. And lets talk
about that health care system.
You are talking about competition. Lets increase competition in
terms of Medicare. We dont have competition in the health care
system. Many States have only two or three companies who write
health insurance. Why dont we do something about that? If we
want to foster competition, lets foster competition. We dont merely
mean it. This isit is empty. These are words that we use back
and forth. This is one-upmanship. That is all we are after.
The basics of health care will be changed by the Health Care Act
for the better of Americans. It will not be a socialistic system,
thank God we graduated from that, since more insurance companies will be involved in order for us to gain favor with the people
that we are dealing with.
You know, we are heading back to 1964. I am convinced that
that is the direction we want to go in, when senior poverty was at
the greatest since the Great Depression. That is where we want to
go. Why dont we just say that? We are using a lot of pretty words.
Yes, you may shake your head, Ms. Rivlin, but I am telling you,
we are marking time in place while many seniors are being stopped
at the door because they are under Medicare. That is what we
should be addressing. That is what we should be saying, enough of
this. The health care system is not working. The health care system has been totally taken over by the health insurance companies
of this country. You know it and I know it. We dont have competition.
In New Jersey, what would do we have, three or four companies
that write health insurance? This is competition? What is this competition? You say, so we will narrow it. Maybe next year we will
have three companies. Maybe Co. C will take over Co. D. In how
many States do we have only three or four or less companies writing health insurance, and you want to put our seniors into that situation? That is not competition. That is a joke. You know it and
I know it.
By the way, Mr. Aaron, I want to congratulate you on the work
you have done. I know since I have been here for 16 years, you
have been at the forefront of talking about these issues. These are
critical issues for all of us. I know that it is not very popular to
try to hold down out-of-pocket expenses. That is not a popular position, Mr. Aaron. But I dont care whether it is or isnt. You have
done the right thing. I admire what you are doing.
We have enough here to work with within the legislation to
change Medicare, but lets not throw away everything because we
want to get to a few who will profit only. Thank you, Mr. Chairman.
Chairman HERGER. The gentlemans time has expired.
Dr. Boustany is recognized.
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Mr. BOUSTANY. Thank you, Mr. Chairman. I thank you for
holding this hearing.
I think this has been a nice reprieve where we actually get to
talk about policy, and I want to thank all the panelists here today
for the serious work you have done over many, many years to advance the debate and to advance real solutions to solving health
care.
Senator Breaux, let me publicly thank you for your many, many
years of service to our State of Louisiana and our country and to
your continued willingness to do this and to serve in a public capacity to advance the debate in health care.
Mr. Aaron, you raised the point about competition and the fact
that it has not lowered costs. I would submit that we are really
stuck right now between a price-controlled system and vastly imperfect competition. We dont really have the kind of competition
that is necessary, both in the health care financing arena as well
as in the delivery system aspect of this. And I think if we could
get to more perfect competition there, we would see the advantages
of lowering costs and enhancing quality. And that is coming from
somebody who has had many years practicing in the health care
system as a physician.
I have some really deep concerns about the tilt toward price controls in this, which I think it is pretty indisputable that that is
what we are operating under right now. And the problem is we already have a serious shortage of physicians and nurses in this
country, and if we continue on this path where we have seenwe
are facing the cuts in sequestration, we have seen cuts year after
year to providers, what is this really going to mean for access? Because coverage does not equate to access to good high quality care.
I know, Senator Breaux, you and I, actually even before I got to
Congress back in the 1990s had serious concerns about trends we
are seeing in the Medicare program whereby, for instance, as a
heart surgeon, I would see a patient in the emergency room and
do an emergency coronary bypass operation, and then in the aftermath of all that, we couldnt find a primary care physician to take
care of the patients basic health care needs. I would have to get
on the phone and start begging physicians in my community that
I knew well and worked with to take on a new patient. And the
whole issue was the cost. The cost of care and the cost to these
physician practices is not being met by reimbursement. So if we
can get to a system that brings us back to a real competition, I
think it makes a difference.
I want to compliment Chairman Ryan. I know he walked out.
But he has actually taken a lot of the work that Dr. Rivlin and
Senator Breaux, Mr. Antos, you have worked on, and Mr. Aaron,
and put it into a body of work along with Senator Wyden to try
to get us to that. And I dont know of any other alternative.
So, would anybody comment? Is there another alternative out
there other than the premium support model?
Mr. AARON. I think the key to solving the problems that you
have described, and quite eloquently, I believe, regarding the fragmentation of care comes in some of the innovations that are in the
Affordable Care Act, in particular, two that I would focus on.
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One is the creation of accountable care organizations, which are
groups of providers who would be paid to assure the health of people who enroll with them, much as health maintenance organizations do; and the second would be bundled payments, so that in the
event of a coronary artery bypass graft surgery case, a payment
would be made not just for the act of surgery, but for the followup care as well, so that you, together with a primary care physician
and perhaps a nurse practitioner who would regularly contact the
patient to make sure that he or she was taking recommended
medications, would all work together. That is the key.
Mr. BOUSTANY. Mr. Aaron, one of the fundamental problems
not addressed in the Affordable Care Act is thein the context of
accountable care organizations is we still have Federal barriers in
place that prohibit physicians to integrate care with hospitals, and
that has not been addressed adequately. We need statutory relief
in that area if we are going to see those kinds of innovations.
Mr. AARON. I agree with you completely, and it is an illustration of how the law may need to be amended.
Mr. BOUSTANY. Senator Breaux.
Mr. BREAUX. In alternatives, and I think that Congressman
Kind had pointed this out, Ron talked about the demonstration programs that are in the Accountable Care Act. I remember when I
was in Congress when I wanted to stop something from happening,
I used to offer an amendment to do a study, or maybe to do a demonstration program, hoping it never got completed.
But I think the things that are in the Accountable Care Act, the
demonstration programs, are very important, but you can be for
both going to a premium support system and a demonstration
project in the Accountable Care Act. If the demonstration programs
work, it will improve the fee-for-service delivery system, and then
if you have premium support, they will be better competitors. And
that is what we are trying to bring about.
I think the demonstration programs are helpful, they are important, but they are not an either/or situation. You can move to a
premium support system and support the demonstration projects
and hope that they work very well.
Mr. BOUSTANY. Dr. Rivlin, do you want to comment?
Ms. RIVLIN. Yes, I fully support what Senator Breaux just said.
It is a mistake to think of these as alternatives. At least our plan
envisions that the Affordable Care Act continues, that the demonstrations and the various institutions that were set up to improve the delivery system go ahead, and we hope that works. We
are only saying that there ought to be another way to get these innovations into use, and that would be competition.
Mr. BOUSTANY. Thank you. Mr. Antos.
Mr. ANTOS. I agree with that. But it would also be a mistake
to believe that these things are going to materialize overnight. As
someone said, the devil is in the details, and accountable care organizations are devilish.
Mr. BOUSTANY. Thank you. I yield back, Mr. Chairman.
Chairman HERGER. I want to thank our witnesses for your testimony today. This has been an extremely interesting discussion,
one that highlights the need for Congress to act soon in order to
place Medicare on sound financial footing. Premium support pro-
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posals like those we heard about today hold promise to improve

how care is delivered, better protect beneficiaries against Medicares cost sharing requirements, and utilize competition to control
costs for the program as a whole.
As a reminder, any Member wishing to submit a question for the
record will have 14 days to do so. If any questions are submitted,
I ask the witnesses to respond in a timely manner.
With that, this Subcommittee is adjourned.
[Submissions for the Record follow:]
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April 27, 2012
The Honorable Dave Camp

Chairman
Ways and Means Committee
U.S. House of Representatlves
Washington, D.C. 20515
The Honorable Sander levin

Ranking Member
U.S. House of Representatlves
Washington, D.C, 20515
The Honorable Wally Herger

Chair, Health Subcommittee
U.S. House of Representatives
Washington, D.C. 20515
The Honorable Pete Stark

Ranking Member, Health
Subcommittee
Washington. D.C. 20515
Dear Representatives Camp, Levin, Herger. and Stark:

I am writing to you on behalf of AARP's 38 million members and the millions of
older Americans and their families who depend upon the Medicare program. Our
stalementtoday will focus on comments generally to the creation of a "premium
support" system for the Medicare program. We appreciate that the House Ways
and Means Committee is holding a hearing focused on the long-term future of
Medicare. AARP believes it is critical that we strengthen Medicare to ensure
both the health and economic security of cU(Tent seniors and future generations.
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AARP is concemed Ihat rather than recognizing that health care is an

unavoidable necessity which must be made more affordable for all Americans, a
premium support system may Simply result in a shift of high and growing health
care costs onto Medicare beneficiaries, as well as a shift of even higher costs of
increased uninsured care onto everyone else. The typical Medicare beneficiary
today, living on an income of roughly $20,000, already struggles to pay for their
ever-risin g health and prescription drug costs -- and nearly 20 percent of their
income currenlly goes to health care costs. By creating a "premium support"
system for future Medicare beneficiaries, any such proposal risks simply
increasing costs for beneficiaries while removing Medicare's promise of secure
health coverage - a guarantee that future seniors have contributed to through a
lifetime of hard work.
69
The Honorable Representatives Camp! Levin, Herger, and Slark
April 27. 2012
Page 2
Proponents of a premium support syslem for Medicare believe Ihal such a

system could, depending on how the government contribution to premiums was
determined, reduce future federal Medicare spending. Previous proposals
assumed significant savings would come from competition among private plans
in Medicare. However, many critics have questioned those savings, and point
oullhal much of the savings are achieved nol by lowering health costs, but
simply by shifting costs onto beneficiaries. The recent experience with Medicare
Advantage, where payments to private plans have generally been higher than
costs for the traditional feeforservice (FFS) population, casts some doubt on the
promise of savings through competition.
A premium supper1 system with an inadequate government con tribution would
greally increase the costs of Medicare for beneficiaries and would increase the
risks beneficiaries would face under such a system. Much of the federal savings
from premium support would come from increased premiums paid by
beneficiaries (i.e. shifting costs from the government to beneficiaries) rather Ihan
from cost savings within the health care system. Especially vulnerable are those
beneficiaries who are unable to afford higher premiums, including Ihose
remaining in the traditional FFS program (assuming it remained as an option),
eilher because it was Ihe only option available in their geographic area or
because they felt it the best option for Ihem. This would be par1icularly true if Ihe
FFS program included a larger propor1lon of the oldest and sickest beneficiaries,
which could further raise costs and premiums compared wilh private plans. A
premium support system - unlike private plan options that currently exist in
Medicare - would under this likely scenario ' price oul" traditional Medicare as a
viable option, thUS rendering the choice of traditional Medicare as a fa lse
promise.
Any Medicare reform proposal should ensure adequate affordable coverage especially for lower income beneficiaries - and protect beneficiaries by
maintaining a guaranteed benefits package and insuring that all plans meet
quality and efficiency standards.
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Various premium support proposals up 10 this point have failed to recognize that
higher Medicare spending is driven to a large extent by high costs throughout Ihe
health care system generally. Medicare is just one part of our nation's health
system, which includes public, individual, and employerbased health insurance.
If we're serious about lowering health care costs, we cannot simply focus on
Medicare and Medicaid for savings. Rather, we must improve the delivery of
health care generally, including increasing preventive services, better
70
The Honorable Representatives Camp. Levin , Herger. and Start..
April 27, 2012
Page 3
coordination of care, lowering the cost of prescription drugs, and the reduction of
waste and fraud throughout the entire health care system.
Over 47 million older and disabled Americans depend on Medicare today, Giving
seniors the peace of mind that they can see their doctor and afford therr health
care isn't a Republican or Democratic issue.
Older Americans agree it's time to work together to find solutions that will ensure
that Medicare will continue to be there for them and their families. AARP is
committed to working with both sides of the aisle to ensure Congress reaches a
financially responsible solution that will ensure seniors have access to the
doctors and services they depe[1d on through the Medicare program. If you have
any further questions, please feel free to call me or have your staff contact Ariel
A. Gonzalez of our Govemment Affairs staff at 202~43443770.
Sincerely ,
~A.,-
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Joyce A. Rogers
Senior Vice President
Government Affairs
71
TEST IMONY OF KEllY ROSS
OEPUTY POLICY OIRECTOR, AFL-CIO
BEFORE TH HOUSE COMMmE ON WAYS AND MEANS
HEARING ON MEDICARE PREMIUM SUPPORT PROPOSALS
APRIL 27 , 2012
Unl e5~ hullO care COSU ire broushl u~der conlro l, they ire projecled 10 bankrllPt ;ndividll.ls,
famille., bll,lne"e., ,tate SOYf',nments, and the federal governme nt bV the lau er hall III the 21 M
century, The fact that Medicare has proven to be more cou eUKtive than private health Insur~nce
plan~ over the P.II lour decades sUKge5ts Ihat the besl w~v to ccnuln future COlt glowth illo improve
and e~lIand Medica re by bllilding on Ihe lIaymeM and delivery .eform. of the Allo rdable care Act (AO) ,
6V conlrast, proposals to replace guaranteed Medicare bendit. with a lIat payment of premium
supporl -also known.5 a vOllcher-wollld Increase overall hHllh cue costs, Shift cost. 10 senlofs and
increase their out-of-pocket spending, create a two-tier health ca re system, ma~e Medicare's fisk pool
more upenslve to cover, and IIltimately leave Medicare to "wither on th e vine ," The dalm Ih i t these
IIremillm sUPllOrl proposals wOllld reduce overall heallh care costs I, based on ideoloiY ral~er than
e~per1ence or facts,
Mediure ha, lower costs Ih~n privale health Insurance pl~n"for Ihree reasons. Fl .. I, Medkare
has lower administrative cost! - about 2 perc~nl of lOla I sllending compared to 11 pe rcent for Medicare
Advanlige plans.' ~tond, Medk,lTe has enOlmous buying power th at allows It to resist IInreasonable
increao;es in pfOvid~r prkes, where~, p"vate insurance companies ofte n '~ck Ihe indlnation or abilll\! to
resist rite Increases In concenttated provider markets, Third, Medicare has the birgillnln, power
necessary 10 prevail llPOn prillate providers 10 implement payment and delivery relorms Ihi l prom;o;e 10
bring CO!!S unde, contlol.
In ildd!tJon, Medicare has experienced Igw.!U'os!,!I!owtll,gVE'r tim.$' thiO private iosllrance plan,.
Belween 1970 and 2009_ Medicare spending per enrollee gre w one percentage polnlless each Veallha n
comparable pri vale heallh care pfemium. -oron~ third Ie over four decade,, ' In addllion, b~tween
2010 lind 2019, Medicare spendlog per C~ pili 15 projected to Srow nearly two percentase lIOints slower
than private heall h Insurance ,"
ThiS is why ploPOsals to repl i ce guaranteed Medica re benefllS with IIremlum .lIppOrt vouch""s
would InereaS' ove,all cost. in Ihe U.S. health care ,v,lem, The Congre"ional6udgetOffice (C601 has
found that t~e 2011 Rya~ p remium support proposal would Increase overall health care COlts for the
average 65-year-old beneficiary by 40 percent-from $14,750 to $20,500-in Its flrst year 01
implementat ion," O.... r 7S yea .., Ihe 2011 Rya n plan wOllld inorea,e the coSt of orovlding Medic~r~
eqllivalent policies by 011 least 520 trlllion,'
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To theet;tent toal Prem ium SIlPPOrt proposals .... ollid reduce lOme portion 01 Ihe lederal
government's health Care con~, th~y would do 50 bV shifting a much higher amollnt 01 COSIS to seniors,
6ecaule the vallie of a vOllcher would almost certainly lail to keep up with health care cost growth,
beneficia ries wOllld have 10 pay mOre 0111 of pocket each year-eil her to buy mote generous prlvale
plans or to stay in traditiona l Medicare-or they would hav~ to sell ie for less npensive pl an.lhat
provide lewer benefits or require more co~t sharIng, According to CBO, fiep, lIyan's 201 J premium
..... ppotl proposal wOllld Increa,eoulol-p<Kket heallh care .pe nding per IN!neflciary by $6,000 In il' fir~
year of implement ali on-from $6,150 to Sll,SOO,~ Moreover, theamount of the ~ouchers could be
easily dialed down to 'hift even more wSi. 10 .eniots,
72
Premium 5UppOrt prop05al~ th.eaten 10 create a two-tier health care syste m, In the upper tier ,
the wealthiest senio,s would supple",ent Ihe" lIOuchers wlt~ the'r own resources 10 access Ihe most
ad~anced medical ca'e. In the lower tiel/ seniors with more modest .esoulces would only be able to
acce .. Care covered by their in<reasingly inadl!<luatellOucher.
Maintaining trad il,o",,1Medicare as an alternative 10 privale insurance plans would nOI remedy
these delects, We know Irom e~perl e nce th,lI priVate Insu.ance companies do nOl compele with
!radil;"n"1Med icare based on efficiency, but .alher by ' cherry picking" t he healthiest and least
e~pensi~e beneficia ries, This hu been the expNlenceof Med icare Advantase, whose pllvale plans have
a history ollrylng 10 attract h .... llhy seniors and discourasing less heallh y en.oilees and whose costs per
beneficiary we,e neverthele" 9 percent higher than trad illonal Medicare in 2010. This was also Ihe
expe rience of t h.. Medicare ~ Choice progr3m In the 19905.
Because of this tendency of prNat e plans to che rry pick the healthiest and lean expensive
beneficIarIes, prem,um supporl proposals would I.. ad to the gradua l demise 01 Medicare as we know lI_
The pool of beneficiaries enrolled in trad itional Medlule would be sk~er and mOre expensive 10 co"er ,
HlghercoslS fm a dwindling pool of beneficia ries would lead 10 higher premiums, ,hrln~ing the .isk pool
furtll!>r and drIving up prfmlums further, This is known as it "death spiral: Or as House5puke, Newt
Gingrich calle1:l it in the 199Os. "withering On Ihe vine," Although , Isk adjustmen l# is designed to
add.es. thiS pmblem, e~perience has also shown that risk adjustment is flawed and t hat ultima tely
prIVate plans are overcompensated for recruillng healthY beneficiari~s . Th~ impo rtant thing 10
understand Is thai Medicare would be d is.dvantaged nOI beC3use it is leiS cost-effective Ihan privale
insu rance plans. but because It pools risk without regard to health status and does not cherry pick Ihe
hea lth lesl and leut expensive benef",;aries.
In Ihe end, premium support proposal, would not only fail 10 conlaln DYerali COSt, In Ihe US.
health care system, but they would cripple Medicare's superior ability to conta in ''''Is. With a
dWind ling number of beneficiaries, Medlcar~'s administritlive costs would Increase as it percentage,of
spend ing. Medlcar" would lo~ Ihe bargainIng pOWilt needed to resist unrnsonable provider price
Increases. And Medica re would 1(l5e the cloul needed 10 drive payment and delivery reforms by privale
provide ...
In 5hoft, prrmlum suppo rt proposals would be it giant step in Ihe wrong direction. The real
problem is nOI Medicare spending growth per se, but overall cost growlh In our health care svstem,
which also driy"s up CDSts for Medicare. Premium support propOsa ls wou ld ma~e this problem worse by
drlvln8 up overall costs, Instead of crippling the ability ot Medicare to contain health care cost growth,
we should Improve and e~pand Medicare and take advantage olilS market power 10 extend paymenl
and delivery reforms th.oughoulthe entire U.S , heallh care system .
'...... f.O\IIy,_,....,~..,..,m"li_" _ llOlll. ... s.

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73
AFSCME,
Statement for the Record

by the
American Federation of State, County and
Municipal Employees (AFSCME)
for the Hearing
on
Before the
Subcommittee on Health
Committee on Ways and Means
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April 27, 2012
74
S I:tI('menl for !he Rfi:o rd

by Ihe
AmeriClin Feder.... inn ofSh~ .e, C ounty nnd M un ieipll l Emp loyees (AFSCME)
Medicare
Fnr Ihe H(,!l ring nn

I'r~n~iu'" Suppon l'rul}(ISMls
Befnu th~
S ubcnmmill ('(' on ll ca lth
CUll1mill(' ~ 011 WaYI Mild Me. ns
U.s. Il nllse of RC llrr~ nla tins
AIITi12 7,2012
Th;s Slalem"nl is submiuoo on behalf ofth., 1.6 million workers and reti ....... members of
American Fcdernlion ofSla le . Coon ly and Ivlunicipa l Employees (AFSCME). for the hearin~
held April 27. 20 12 on MedieaTl' Prem ium Support f'rupuS3ls.
tilt
AFSCME is proud of labor's hisloric I'(l l~ in the crc~tion MC'dicare. It i5 ~n indisp.'llsuble

federal social in,OTanc" progmm. Medicare provides \,hal ~onl!nercial health insurnnee
enmlXlnies did nOl, ....,ou ld 001. and could not ; affordable, utkquu.e health cowrage ror /\merica 's
elderly population regardless of income or Ilea Itt! SIa l us. Before tile enactment ofMoo ican', only
lIalflhe population agc 65 and older lIad he~hh illsurnnceand hoS\' who did haw covernge, paid
close to triple whal younger people pa id for prem iums:md olher out -ofpockel costs.
l3efor(' "" eVI\ luate prem'um support proposals, it is ,,,'portant 10 briefl}' .... vicw
Medicare's core purposes lind how Mcdieon! has successfully pooled our Mtion's resources 10
equitably meet an ongoing need for each generation ,
Medicar.. &S NOI "'nil Shyu ld Not Ik> Uk<' Comrncrei>ll .l nsonou ce
t>.'ledicare and privale plans may see m as being sim ilar in thaI both allow ;nd;\'jdIl3Is to
go 10 a doctor and ~et medicaltreatmenl. The foundatinn lind purpose of Medicare i profoundly
unlike l'Ommereial health pbns. As a soci~1 insllrnllcc plan, Medicare's purpose is to absorb 3nd
spread risk , serving individuals who may have COSIly and complex medical nl.'Cds as well as the
relatively healthy. Medicare un;ll-s lhe resourees of lhe emire nal;OIl to sh ield olle genermioll
after another nf ol dcr Americans and in dividuals with disabi lities from fmanciol Olin in the Cl'cnl
of ilIIlCSS, injul)' Of expensive chronic con dilinns. AU American workCI1I contribute to fund the
program and reap Ihe benefits oflhe progmm once Ihcy are eligible. No one ;s sh ul out bee~use
nflleahh slatus or income. Medicare by design pays lor all m:'c~ medical cart: for
benefic iaries. Medica .... w ill pay claims wi thoul discriminating against an individu.al becall!;C of
"here Ihl'Y live, thcir hislory. Ihcir diagnoses or prefcrences. President John$OlI 'S Medicare
signing stmemcn l addressed Ihe core American values 31 the hean of Medicare's 11nancial and
bend; t design- in dividual dig.n;ty, faiM1~'Ss. and safeguarding Ihe common good:
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'No longer will older Al11erie,ms be denied Ihe IIcaling miracle of modcrn medicine. No
longer will illness crush and destro), the savings thaI lhey ha ve so carefully PUI away ovcf
3 lifetime so Ih~1 Ihey mij!hl enjoy dignity in their latcr years. No long~r \\-ill youn g
75
families.$(."/' their oll'n incombi. and the,r Q",n hop"s, eaten away .simply ~atlSe th .. ), lire
carryin g olltthd. deep mornl obligations to tht ir p.1tcntS, aJld to their uncles, and their
aunts, And r\(} longer will th is Nat ion re fuse the hand ofJ ustk~ to tllQS~ whu ha"e gi~en a
lifetimt! of!ICrvkc all<! w isdom and labor 10 Ihe progT\:~S n flh is progressive country."
Pri"at.. health insurnnce companies haw a very dim're nt purpQSC and function, l 'he;. businc~s
inter~st is to avoid k lecting indi viduals " ,th medical needs in order to maximi :r.e pro iilS. In
short, insumnce conI panics !lCek to avoid risk. nOt pool it.
The Iludget for FY 2013 passed by Ihe House of R~pre5t!ntatiws along part)' lines. call s
for a radicall'l.'$lnlcturing of /ltkdic~rc and a repeal of the Atford able Care Att {ACA). The
jllslilicalion for such ehnnges is to rc<Iuce the dclicil1lnd to rein in the ~o-ca Ued "ollt-(l fcontro'"
spendi,,~ in Mo:dicare and to Sl!ve the fUllm" of Med'care. Analysis of data actually shows these
ju, tifiC"dlioos to be highly que~tiolluble.
1-listnric~lly , MediCtlre per capita spending has grown 11 bil slower Ihnn tile privateseclor' s. 1'.kodicares growth r~te (s rcn13rkably low when it comes 10 I;!eahh can: eosl&pcr
pcrS(m. 'Over the lIe)(t decade. Mcd icare's per bcllcfleiary nue of growth is projected \0 be h,w,
in lurge pC/rl Jut! /(1 1.IKJIIges i n /he AJjordtl/)/1! Cur e >l e//AeA).
The AC A promOtes cosH:niciellt deli ve!)' of quality care ullde. Medicare. Tbc law laps
imn Medicare's purchasing po,,"er 10 pronlpl providers, "ho arc increasillgly concemml~-d alld
call elTcdhcl), drive Ull pa}'ments regardless of quality , to do more to control their COSIS.! It is
important 10 high lightlhnt 1I0ne o f the payment refonns a m'C I Medicarc's gnaranteed benefit
packages. In f.1Ct. the law s pells out loud alld clear thaI the guarnlltt'ed ben('flts in Medicare !'art
A and I'm' Il will not be redllc.::d or eli minated as a result of changes 10 the Medica,.:: program.
The AC ,\ prQt~ts ta.xpay.... ru}(l M.w~are dollar$ against fraud in M~dicarc . I" 20 II ,
Medicare u5~'tIthc IWW ACA t'll foTC<'meot louis w n:CO\'cr nearl), 54.1 billion from individuals
and compani~~ who ullemptcd tu defraud Sl' niors and la xpayers _ln most cases. they charged
Mcdica re lQr sl'rv ices never rccei ~ed by belleflciarie5. or d<'libl.'T1llcly owrchargt'd for services
rendered.
The fisca l ;nt prul'ements ,n th~ ACA help Med;~are to hold dOwn prem ium in~re:tSCi tor
h<'nelidaril'S who ...", o ltlcr and sicker 1han the non-Ml-dicare populatioo, The COllgrcss ioual
Budge! O tlice (C BO) IInds thM Medieart premiums. eurr<:ntly e~lil\lated 10 be 11 pt.'n;cnt lov;er
than private il\SUr3n~~ premium s ror the same h<'llelit package, will be about 30 pt'rt"t'Ilt luwer by
the end of thc "~)(I d~...,atle_
Ikcausc the fund ing stnletu("e of Medica re - through payroll eontributions, ("eVenues ~nd
hcnclki,uy cost-sharing - fluctuates with the economy, the surclire way to fortify Ih" soh'ency
of Medicare and address the dc fi61 is- 10 inlPI'()VC the ccollomy. Creatillgjobs. closing corporate
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Jbid.
76
rax lOOpllok'S and requiring Ihe wealtlliest Americans to pay
and il5 bel1diciaries.
th~ir
rair $lIare will help Medicare
Tile n<:~d for Medicare 10 Il'main a refuge against financial ruiil caused by Ihe ca[ll'ice o f
Ill ness and disability rinJ!.Sas true today 3S il did nearly lIa lfa cenlury agu "hen Medica", "as
creared. Any propos.aIIO redesign nr Slruclllr'oIlly change MediClLre ~ ho\lld be able 10 affi mlalively
meel allea~llhree criteria wbieh arc at the IIcar1and soul of Medicare.
I J Docs Ihe proposal eff<'(:\i'l:ly spread ri~k m,d d<:liver guamnlccd benClils ofm~'<Iicall}'
n<.-eess,'lry C8re, reg3rdles.~ of ~n individual 's medica l eondilion ?
2) Docs Ihe pro~1 cfl'cctivl:ly continut MJ:djcare ' s 00fC rlmction o fpooliug r<:sourccs
In fillRnce health covernge for ~niors and individua ls with disnhililie~?
J ) Does Ih~ proposal eff~'cl il'l:I)' conlinue Medicare' s core purpose or prOlecl'ng
beneficiaries and tlleir ramilies from rmlmciul ruin due 10 ilIn<:ss, dis~85C or i.Uul)'?
The
benefils.
1-loltse-P.1Ssed brldgel which restructures MJ:dictlre inlo prell1iulll supportS, CllIS

Ihe age oreligibilil~' alld repeals Ihe ACA r.1 ils Oil all three crilcria.
I'"~ises
The I;>ttdget plan n:plac~'S ~1ctli(are' s guaront~.... ofhcallh covcra~~ anti Sei premiums.
In;lead, fUlulC relill'es would be gi ven a flal p.l),lIICn\, or voucher. Ihat bcnc licinrics would usc 10
purchase eilh,'r private health inSUJ"<Incc or traditional ~kdicare. Tile- voucher is dcsign<:,j 10 lose
valuc o\'cr lime so thaI more and more Orthe COSI of cowrnge (premiums and eOSI sharing)
would bo: shill~-d 10 beneficiarics. Be~ausc Ihc median income ufMcdican: households is about
S25,O{JO n ycor, ~nd mOSI spend three limes ~ s much orlllcir budgets on olil-of-pocket health
c:-cpcnscs compared to nOII-M,'dicare hOlLseholds. 1l101l), rclirc~'S woold find lhal eowrogc is
unarrordabf~ HI higher cost s.
According 10 th(- CSO, Ihe prem 'um Support or vo\Jch~r proposal will incICltSC coolS for
Medicare bl:ncficiarics by 1110re than U ,200 per bcn~'ficiary startillg in 1030 311d increas ing In
S8,000 in 2050.
O ITering bolh pri"ate plans ami lradltional MJ:dicare USC$ llle promls<.- of choke to
di sguise Ihe dill1ini shmenl of Medic pre' s funcliOlllo deliver gual'"4ntecd bcnC'lils pnd pool
resources :md SPf;.'ad risk , The private plans, like the privale Mcdi(aH" Adl'anlug<: pl~n$, will sli ll
ch~\T)'-pick heahh;"r :md less COSIly clirolll"l!S and I~ave Medicare willi II less health)' poo l ur
bcn<:ticiaric$. Over time, Iradit ional M(-dicar<' will bc<:o'ne less: affordabk, causing cOSts 10 rlst
for s icker and older beneficiaries.
Th~re
is no guardntee Ihal Ih~ premium support or VOUdlL'I" wuuld co,w Ih~ COSI of
al Ilw Slart or ov~r I" ne. C umntly, r>k-dkare premiul11 s a~ Iht same, r"gardkS5 of
IIhcn.' a bendkiary re . idcs il\ our nalion , Th~rc is LIt) guaranl<.'c Ihat the premiums will be
adequate 10 cover /I privMC Medicare plan regardle ss of!ocalion.
M'-dicar~
The pri vale plans would nolix required 10 provi.k the gU8ranle<:d benelilS under
Medicare , The private plaus would only Ix requi ....-d 10 prt)vide Ihe uCluarial equivalenl orlhc
bcUC!,IS undcr lraditional Medic~rc. Again, Ihe history ofbencficiary abuse and exploilatioll by
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77
Medicart:! Advantage private plans iliuStlllte the
sickest and ol de st ben~ficiaries,
d3ng~ rs
for heallll and financial SI.'Curit)' orth~
Medicare is an amazing success story - providing heaith and financipl SI.>cur ity to
mill ions of Americans, even during thc worst e<:onomk crisis since the Greal Dcpl\'ssio n.
AFSCMF. opposes the HO\ls~pa sscd budget's rcstnlcturi ng of Mt'dican: beCllUse it would expose
o lder Americans and their famil ies to financial nlln caused by the caprice uf illness and
di sa bility. It would a llow s ick and older 5CniOM; and individuals with di sabilities to be denied the
promise of modern medicine because of income Mnd hea lth stat us. In shon , we oppose the
premium support or \<oucl1~r prtlposal because it ends Medical\', ns we know it .
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78
STATEMENT FOATHE RECORD

SUBMITTED TO THE HOUSE WAYS & MEANS HEALT H SUBCOMMITTEE
ON
PREMIUM SUPPORT AND ITS IMPACT ON MED ICARE BENEFICIARIES
APRIL 27, 20 12
ALLIANCE FOR RETIRED AMERICANS
815 161H STREET, NW

WASHINGTON. DC 20006
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1fL..YNJ..relite(1americaOs.org
79
The Alliance for Retired Americans submits this statement to the House Ways &
Means Subcommittee on Health Care to express our strong opposition to the premium
support provision included in this year's House Budget Resolution , H. Con. Res_ 11 2Premium support would end Medicare as we know it for Medicare beneficiaries,
removing the guaranteed benefits that have provided health security for our nation's
retirees and the disabled since 1965.
Founded in 2001, the Alliance is a grassroots organization representing more
than 4 million retirees and seniors nationwide Headquartered in Washington, D.C., the
Alliance and ils 32 state chapters works to advance public policy that strengthens the
health and economic security of older Americans by teaching seniors how to make a
difference through activ ism,
Premium support, as proposed under the House budget, will be devastating for
many seniors. The plan ends the guaranteed benefits under Medicare, which assures
beneficiaries that any and all services that are medically-necessary will be covered ,
Under premium support, beginning in 2023, Medicare beneficiaries would receive a
fiKed stipend to be used to purchase insurance through a Medicare eKchange.
Beneficiaries could choose between private plans or traditional Medicare. The problem
wilh this proposal is that the capped payment would not keep up with medical innation.
Instead, the fiKed stipend would be indexed to the gross domestic product (GOP) plus
one percent - a calculation that does not adequately account for rising medical costs.
Over time, as medical costs continue to rise , the capped stipend would be insufficient 10
cover the premiums. requiring seniors and the disabled to spend more and more money
out-of-pocket to get the same care they currently receive under traditional Medicare.
While higher income beneficiaries may be able to afford the higher premiums or
increased out-of-pocket costs, most Medicare beneficiaries would not. This will produce
a two-tiered system of care. with Ihe wealthy having access to all the latest technology
and treatment, while the fest of the population goes without. Contrary to the image that
seniors are well off, half of the people on Medicare have incomes below S22 ,000 a year,
To make matter worse, Medicare beneficiaries already spend 15% of their income on
heath care costs. which is three times more than the rest of the popUlation. The added
out-of-pocket costs under the Ryan Republican budget will force many Medicare
beneficiaries to be underinsured and. in many instances, forgo needed medical
treatment.
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Furthermore. premium support may very well be the demise of the Medicare
program. Proponents argue that premium support allows Medicare beneficiaries to stay
on traditional Medicare. While this may be true initially, It is uncertain whether that will
hold true in the future. Based on the experience 01 Medicare Advantage plans, one car'\
expect that private Insurers under premium support will likely cherry pick the healthiest
patients leaving Medicare with sicker and more chlonically iii individuals. This will
80
undoubtedly increase costs for those under trad itional Medicare. Medicare has
historically been more efficient than private insurance, in part due to its enormous risk
pool. However, should Medicare become saddled with sicker pallents, Its premiums will
rise, causing even more of the healthy beneficiaries to abandon the program, The
continuous rise In premiums and subsequent drop in enrollment could undermine the
entire program as increased costs make the program unaffordable and unsustainable.
Finally, premium support does nothing to address the true drivers of rising health
care costs. Instead of implementing reforms that will bend the cost curve, premium
support. as adopted in the Ryan Republican budget, simply shifts the costs on to
beneficiaries_ If Congress is serious about reducing health costs. it should allow the
new C(ist--savi'1gs initlt1tives "I"! the Affordable Care Act to be implemented These pilOI
programs are well thought out and have been successful in reducing costs while
improving the overall health of the population. Furthermore, the new initiatiVes do not
reduce health expenditures by transferring the costs on to beneficiaries.
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In addition to premium support, ttlere are various other ideas that have been
proposed to help reduce the cost of health care. including raising the Medicare eligibililY
age, instituting a single Medicare deductible and charging a surcharge on Medigap
policies. Like premium support, these policies are shortsighted and not in the besl
interest of Medicare beneficiaries. They seek to reduce health costs by shifting it 10
those WhO can least afford it. As Congress deliberates on ways to reduce health costs,
members should keep the need of seniors and the disabled first and foremost on their
minds and not make radical, harmful changes such as those in Ihe Ryan Republican
budget.
81
Comments for the Record
HOllst! Committee on Ways and Means
Subcommittee Qn Health
Hearing on Medicare Premium Support I~roposa ls
Friday. April 27. 2012, 9:00 AM
by Michael G. l3indner
Thc Centcr for Fiscal Eq uity
Chainnun Hrrger i.lI1d Runking Member Stark, Ulllnk you f,)r the (Jpponunity to submi t
my comments 011 111 is topic.
The whok purpose of social in~umnee is to prevent the imposition oful1eanled ~'osts lind
payment of unC3med benefits by not only the beneficiaries, but also their f3milics. Cuts
which cauS<. patients to pick up the slack favor richer patients, richer children and grand
children. patients with larg.er fam ilies and fmnilics whose parents and I:\randparents arc
alre3dy deceased, given thM the altematil'e is high.:r I3XCS 011 ea.:h working m.:mbcr.
Such cuts would be an undue bl.lrden on poorer retirees without savings, poor lami lies,
small families with fewer child ren or wi th surviving parents. grandpllrents and (10 add
inSul t to injury) in-laws.
The key iSSLle for the futur.: of health care finance is the impact of pre.-existing conditioll
reforms on the market ror health insurance. Mand:ncs under the Anord3ble Care Act
(ACM may be inadt.-'<!utl1c 10 kccp people from dropping insurance - ~ll"Id will cerLllinly
not \\'ork if the mandate is rejected altogether for constitutional l'C3SQns.
If people stan dropping insurancc untilthcy get sick - which is rational given thc
wC3kness of mundl.ltes - then privatc health insuf'dllce will requirc n bai lout into an
ctYcclive single payer systcm. The only way (0 SlOp t!us from h;)ppening is to ellact a
subsidi7.cd public option for those \\'ith pre-cxisting co nditions while repealing mandates
lind pre-e.xisling cQndition reromls.
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In the cvent that Congress docs nothing and privotc sector health insurance is lost. the
prospects tor premium suppan to repla.:e the ClUTcnt Med icare program is lost as well.
Prem ium suppon 1Ilso wilillot work if the ACA i~ repealed, since wi thout the ACA, pre.cxi-sting condition protections and insurance exchanges eliminate the guarantee to seniors
nccessary for refomlto SlIcc.:ed. Meanwhile, under a public option without pre-existing
condition rt'ronns. bccalJsc seniors wOlJld be in th e group of those who could not
normally get i.l1su/"Jnce in the pri vtue market. the premium SlJpPOri solution would
ultimately do nothil1 10 fix Medicare's funding problem.
82
The all(.'mmive of single-payer catastrophic insurance with health savings llccounts woul d
nOI work as adveni5ed, as health cnre is 001 ~ nonnal go(xL People will obtain hculth
eliTe upon dOClor recomnwndlllions. rCgilrdlcss oflheir ability 10 pay. Pm\'id~r.; will thcn
shoulder the burden of \\aiting for health s:l\'ings account balances to accumulate further encouraging provider consolidation. Existing trends toward provider
cOnsolidation will exa~rbate th~se problems. because patients will lack oplions once
they are in a network. giving funder.; little option other th an paying up as demanded.
Bruce BurtlclI wrote in the New York Times Economix Ologon May 17.2011 outhc
nmure or lhe Medicare nnandal problem nnd how to fix il. The information he imparted
is invaluable, however I diS<lgree " 'ith his solution, which is to stop doing the Doc Fix.
He relatcs that the ACA c.xpansion of runding brought the Hospitallnsurnncc Trust Pund
(Part A) into balance. with parts I) (doctor visits) and D (Drug coverage) rt.'Sponsible for
most Orlhe unsustainabk cost growth. as patient premiums are sellO 25% of progrnm
co~ts and will] drub coverage premiums covering evenlcss.
The Ccnter belicves that Slopping doctor bills frOm going up on th e dcmand side will not
work. We know that because it did not work lor Medicaid - since restricting payments
have SlOpped most doctor.; from taking Mcdic~id). Th is li nding has a grem deal ofimpact
on what is possible in preventing th e doctor Ilx.
The problem wi th Mcdicare I'an 13 is thm inereUS(.'s cunnot kcep up with costs, like they
do in Ihe privote market. because doing SO viol ates the commitment to not cut SocioJ
Security benefit checks. Tht' cost of living. adjustment must be high enough to cover the
premium increase each year although lor many that is ull it docs. Funhcr cuts bring up
Ihe S[lI!Cter or seniors eatin g cat foot to make ends meet. hence the reason thol the riSClll
Comm ission was called the Cal Food Commission by progressives.
Premium support and not pnlehing dOClor rees ore mtempts to makc doctors TCstrict their
costs - bolh to seniors and overall. Prices nmurall)' risc more quickly Ihan inflation
bt."CllI.lSe these services arc subsidized, so any co-pay must be increased to slow demand
from users in I!.xactly the slime way the market wOl!ld without subsidies or insurance. The
desire to make doctors pay more Is a recognition thm the main impact of both insurance
,1I]d subsidie.~ (and subsidies fo r insunmcc) is higher income ror doctors and a larger
medical CIl/"C sector thlln would Olhelwise occur inll rree mllrkct.
OIIT hybrid system is the mosl expensive uplion . eilht.'r going 10 much less
comprehensive insumnce for evt.'ryonc or an entirely governmental system would be
cheaper, but is politically untcnllble (at least until private insurnnce ooJlap~s or is
evemually supplanted by an ever cxp,mding public option).
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Going aflL'T doctors still won't ,~ork, however, as the Medicaid experience clearly shows.
Premium support is a way 10 have insurance companics go aflcr doctors instead, bUllhat
willlikc1y y ield the same result.
83
Making pmients more conscious ortheir care might do the trick. both wilh more realistic
premiums lor Part Il and Part D, with both ri sing to absorb half the cost - although
premiums could be lowered by increasing co-pays und providing seniors with Flexib le
Spending and/or health savings 3CCOUntS. The problem is that this is untenable when
dealing wilh a population with largely li xed incomes. That problem, however. is not
unsolvable.
The obvious solution. which no one has yet suggested. is to change how COLAs lire
calculated. moving rrom the wage index to an index based 0 0 IIh31 scniurs actually buyespecially health care. If premiums were inc reused quickly. COLA changes would have
II) be as mpid.
Such a propoSal Il ouid ha.>ten thc date IhattheOld Age and Sun'ivors Insurance fund
Ill'eds rescue. II also impacts lower income seniors to a greater eXlelllthan higher income
seni ors, since they havc less lell ol'er aflo:r ally mnndutory eopa)'. Either bcnd points
wou ld h31'c 10 be reset orlhe entire eomplic:ued system orbeod points would have to be
replaced a ncw mcthod or crediting contributions. where employer contributions arc
credited equally ruther than as a match to the employee contribution thus moving.
redistribution from thc benefits side to the revenue side.
An 8vcmge cmployer contribution Ilouid provide cven more inccntil'c for increasing the
amount or income subjccl to benefits. <II le:lst for the employcr eOOlribution. Of course, if
you do the lallcr, we might as well simply use:l Net Business Rcceipts Tax or a VAT to
replace the employcr contribution (which eapwrcs all income lI'ilh the latter burdening
impons as wcll)
Shifting to more publk lunding of health cure in response 10 future events is neither good
nor bad, Rather. the success of such funding dcpends upon its adcquat'Y and its impaci
on the qU:llity of care - I"ith inadequnte runding and quality being related.
Ultimately, tixing health eMC rctoml will require more funding, probably somc kind of
employer payroll or net business l\.'Ccipts Inx - which would also fund thc shonfall in
Medicnrc and Medicaid (and take. over most ofthcir public rcVCllllC lunding),
We wi!! now 0101'1.' to an analysis of flludin g options and their impact on patient care and
cost control.
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The com mittce well underst3nds U1C ins 3nd outs of increas ing Ule payrolltnx, so we will
coniine our rcmarks to a tuller e.xplan;:uion ofNet l3usincss Receipts Taxes CNBRT). Its
busc is sim ilar to II Valu e Added Tu); (V AT). but not id..: ntical.
84
Unlike a VA T. an NBRT would 110t be visible on receip ts and should not be lCro ruted 111
the border - nor should it be applied to imports. While both collect from consumcrs. the
unit o f :malysis for the NllRT should be the business rathcr than thc tr~nsaction. As such,
il5 3pplic3Iion should be uni versal - covering hQlh public companies who curren tly iile
business incOme t(lXC$ and prh'(Itc companies who currently iile Iheir bUSineSS c."po:nS('S
on individual rt'turns. The key difference between the two lases is th:lt lhe NBRT should
be the vehicle for diStributing tax benefits for families, particularly the Chi ld Tax Credit.
the Depcndcnt Care Credit and the Health Insurance Exclusion. as well as any recently
enueted credits or subsidies under the ACA. In the event the ACA is refomled. ilny
additional subsidies or Ulxcs should be taken against lhis lax (10 pay for a public option or
provide for cata:>lmphie care and Health Savings Accounts andlor Flexible Spcl1ding
Accounts).
The NORT can provide an incentive for cost savings ifwc allow employers III oOcr
ser" ice~ privatcly 10 both employees and rctiri..'1;S in exchange for a substantial tax benefit,
either by pro\'iding insurance or hiring health care \\'orkcrs directly and building their
own facilities. Employers who fund cat~strophic care or operatc nursing c:Jre racilitie~
would gi.:l an eV1."11 higher bencfil. with the proviso that any care so provided be superior
to the CIlre available Ihrough Medicaid. Making employers respo nsi ble for 01051 eOsl~ and
for all cost savings allo\\"s Ihem to usc some market power to get lower ra tes. but no so
much Ihm the free market is des troyed.
This proposal is probably the 1110st promis ing way In alTCst health care costs from their
current upward spiral - as em ployers who wotlld be financially responsible for this care
through taxe~ would have a real incentive 10 limit ~pcnding in a way that individual
taxpayers si mpl)' do not have the mCllns or incentive to exercise. While not all t.'1T1ployers
would participate. those who do would dramatically aiter the market. In addition. a kim!
ofbeneiiciary cschange could be established so thm participuting employers might trude
eredi\.li for the funding of former employees who retired elsewhere. so that no one must
pay unduly for the mcdicnl cOSts of workers wh o spe nt the majority orlheir careers in the
service of olher employers.
The NB RT would replace di sa bility insurJnee. hospital insurance. the employer
contribution 10 old age and surv ivors insurM ee, the corporate income lax. businC$s
income taxmion through the personal income tax and the mid range o f personal income
ta:ll collection, cfTectil'ely lowering personal income taxes by 25% in most brackets.
Note that collection Oflhis tax would lead to a reducticm of gross wages., but nOl
necessarily net wages - allhough larger lamilies would rlCl'lvC a large wage bump, while
wealthier families and childless famili es would like ly receive u somewhat lower net wage
due to loss of so mc tax subsidies and beca use reductionS in income to make lip for an
increased ta... benefil ror families will likely be skewed to higher incomes. For this
reason, a higher O1il1ilnul11 wage is necessary so th aI lower wage workers ure
COlllpens;ucd with 1I10re thanjUSllhcirchiid la~ benefits.
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Thank you for the opportunity 10 address the committee. We are, of course, available for
dirccllcstirnony or to answer 4ue~lion~ by members and ~taIT.
85
Contact Sheet
Michaell3indner
Center for riscol Equity
4 Camerbury Square. Suit,,: 302
Alexandria. Virginia 22304
571-334~8771
fiscalcquit y@veri~<'n .net
Subcommittee Oil Ilealth

J.k aring on Medicare Premium Support
Prop()~a!s
Friday. April 27,1012, 9:00 AM

All submissions muSt includl! a list of all diems. persons and/or organizmions on whose
behalf the wiiness appears:
VerDate Mar 15 2010
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This testimony is n01 submined o n behalf oran), client, person or o rg;U1ization other thau
the Center iL~l!lf, which is so far unfunded by nny donations.
86
POLICY & ACTION FROM

CONSUMER REPORTS
Written Testimony of
Consumers Union
on
Submitted to

Committee on Ways and Means
Subcommillee 011 Hettll"
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Apri1 27 , 20 12
87
Int rod uc t io n
Consumers Union, lhe policy and advocacy amI of Consumer Repons l, apprcci:lles thi s
opportunity 10 provi dl! written Il!Slimony on Mcdic3rc premium su pporl proposals
currently being considered as an ahemativc to lradilional Medicare.
Medicare PlVvides cssemial hC3hh coverage for almost 50 m illion American seniors and
p!!rsons lI'i th disabili ties. Mcdicarc faces financial challengcs. primarily as a result of
i nc~asing enrollment due 10 retiring baby boomers. Importantly, however. Medicure per
enroll!."!: spending has been slightly be/oUl\hal ofprivalc insuruncc. 2
Premium support proposals seck 10 trnnsform Medicare from a dcfint,.-d bcnefil program..
in which bendiciaries are guaranteed coverage for a f,,'a:d set of benefits. to a defined
contribution or " rTCmiu ln support" progmm. in which bcncliciarics arc guantnlt,.-cd a
fixed tcderal payment (or voucher) to help cover Iheir health earc c.xpenses.
Consumers Union believes Ihallhis approach io addressi ng the real fi nancial challenges
to Medicare will not rcduce overall health care costs, ~UI will PUI millions ofs.enior and
disabled AmericanS at g rcaler risk of higher COSIS. less coverage. o r bOth.
Unaccepta ble T r,, " sfer of
Ri~ k
10 Br nr ficiari es
Under Ihese proposals. a 13rge amOl!tl1 of risk is lransferred 10 Medicart: beneficiaries.

fieneficiari<.:S al\' at risk for the escalation Of medica! costs abovc GrosS Domcstic
Product (GDP) +.5 perccnt. Thcre are no gUllrnnlecs Ihnt thl: proposal will hold down per
clIpita cost growth. Instead, wc argue 1x:low that COSI cont rol is un likely. ,lIld thu s is likely
to increase costs for Mcdienre beneficiaries, most of whom. II\'C" on modest. fixed
incomes and are nol in a posilion to pay much more for Iheir heallh care.
In addition to thi s fmaneinl risk, in a wor ld of multiple and varying plan designs
beneficiaries are al risk lor being able 10 idcntify the plan Ihal provides the best cuverage.
The "premium support" proposals will require health plans to otTer coverage Ihal is
"lIelutlrially equivalcnt~ to looay's I\>kdicarc Fee-for-Service (FFS) plan . This IllcanS thlll
the Medicare benefit design wo uld no longer be sla ndardi zt'il, requiri ng beneficiaries to
'Cl>"SUIn~1 R~pon~ is Ihe WlJI"ld'~ Inrg,~~t independenl prildueH~"in8 nrgnllil.Qtinn. 1}_in@"I<lnOlrethan 50

13bs.. 3ul l) l<!St tenler. and ~urvC)' rt;,,,ur<:h ,'cnt~r. lhe nonprofit IlIt,"" Ihw,lnd!; or prilductS 8n~ service;
""uaU}. fOlu"dcd in 1936. CousUlner R~p('fU< ha:; ""er 8 mitlj,," ."bscribclli W LIS ma~i"c, ,,"eMile, and
Bmer public~tiol(". hs II<hOCB_'Y di"isiBn. C/msumcr'Ol Uni()ll. " ',,,ks r"r health ",rOml. r<>t><J and prod ,"'t
""[<:1),. linancinl rdOlm1. and nlh ..-r Cj1f\SUlner iSllu~ ,n Washi,)gh)II. 1l.C.. Ihe s latc~. and in Ihe mnrkclrl~et.
1 John 1ll)lnh:tn and Slac~y MtMomo". Medicare. Metlil.~did Und lh~ Ixfi.il Debate: 'j imdy Anal) ~i~ nf
Im"'L-dillle Ilcalth Policy tss,,~s~. Urban In51iwl(. Arrit 20t2.
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88
undc rSland how coumlcss complex designs would aHccllhem, There is overwhelming
evidence Ihal consumers have dimcuhy understanding and compari ng Ihe cosHharing
pro vis ions of hcahh plans, ) We IlIUS! recognize thm Ihese producls are nOI cans of soup
that can be easily compared, especially with new and " innovative" products coming on
the marki.'t. Il1nov(ltion is olkn accompanied by additioll(ll complexity for conSumers.
SOllle proposals promise to provide voucher ree-ipien ts with 'elc:\r and easy to understand
information' on various plans. ~lea hh rlan s, the National Associalion of Insurance
Commissioners (NA Ie) and consumer as!;istors everywhere have been trying to convey
understandable infomlation on healt h plan features for yeMs. Indeed, se\'cral regulat ions
require thatvariOlls health plan summaries be understandable \0 the avc ral!:e health plan
enrollee. However, we ha\le /It) evidence thus far thlll thesc are succe$sful: The reasons
vary: the underlY ing infonnation is complex an d new methods o f usefully summarizing
are only just coming onli ne. s In shol1. these proposals put seniors at risk of obtaining
coverage that they do not understand and that docs not cover their needs.
Uarnessing Murkct Furees - ilow Reali stic '!

Harnessing mnrkel forces to achieve the policy goal ofadcquate health eo\'erage for
seniors in a linnncially sustainsblc. method is a theory that needs a careful reality check.
A~ SOOle
oflile proposals rt.'eognil.c. harnessing competilion among private insurance

pl(lns to achieve a po liey gO:ll \l1kes aggressive governm ent intervention und oversight
The m(lrke\ cannot operate unleltered because cel131n outcomes, such as engaging in risk
st"leetion or di scriminatory plan design s, are a natural by-product of privale insurance
company activity, Yct these pr:lclices undennine Ihe policy goals of adequale, aflordnble
co,lerage for all seniors.
Exper iellce w ith the Mcdican.' Advantage program shows us how hard it is 10 gel this
oversight right. Rules governing benefit design, markcting and other practices have had
to be continuously fine-tuncd due 10 privale insurer predilections to :lItract lhe healthiest
risk s.
Policy approaches that "harness the market" require ruks with respect t6 consumer
prot<:elions. monitori ng and enforcement. Wc CM expect that in all these activities
~ retl ..on Glahn_ -Cl1n,umer Ch"icc{)fl kahh Plan lk~isil1n SU I'I"~ R"tl~ r,,,. lIealil, f~,chatl~~"', Pad tic
B",incss Group I1n Ileahh. FebnJ.1ry 2012. Lynn Quincy. "Whal' ~ Ikhind the Door: Con""l'crs'
Oifficuhil'S ~Iwin~ Ileahl' PInus" . C(>M,"n-~r.;-LJnjon. Jllnuhl)' ~Ot2 .
Coll"'-"!! F.. Metlill. E IlRI Fello". Rich1ll'd L. Wieller. llrian II. Bmnstdo. antl E. h: kn1:l" McGorl), "III'"
KC'IIdablf Art SlIm,nal')' I'lull De:scriplioliS For Il tallli Cart l'lans'?". EB RI NOles. Ot:1Ob<.r 21.106. This
stutl) ro""tllhatlh~ a'~"'g~ n:adab;lily kwl ror imporla"t i"romlsl;"" Cl!nc~m;n~ digibilil~, hcncfiL'l, ..nd
parliCip<1l'l rigl11$ Bnd n:'fK'llsibititics ill summa!)' ptan tJ..-s.:riplions is "rillcil ~l B first J eM c,1lkgc reading
tClel. tle;:r>[l~ a rCQuirclllcnllhallhc malerinls be und~rslnndnblc 10 lht oVC1lIge ptan ~nmttt~.
"I'M Kltimann Gm"p and C,'nSUml'i'S UniDll, "Early Consumer Ttst;ng Qrlk Coverage l'at15 Lubel",
Augus120 11 .
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89
insurers and othcr intcreSlCd panics will try to afTcct rules atlhestatc and fcdcrallcvclto
ensure thm morc advan tage lalls their way, to the detrimelll of sicke r patients.
Unl ... E\"id ... o ~ ... Th:lt Costs W uuld Be l.ow!'; r

Proponent;; lIT"gue that the premium su pport approach can be used to lower hClllth care
costS, compared \0 traditional Medican'. 'fhis must be examined criti call y from three
pcrspcctiv(.'s.
One, it is not just fcdcmlly financed costs that need to be considered but ovemll costs,
including the consumer's out-of-pockct share. Mcrely shilling costs to COl1sum()rs is not
an acceptable policy solution. The Congressional Budget Ollice (CIlO) projects that lul,,1
health carc spending for II typical beneficiary cove red by the standardized benefit under
at least one of the proposals would grow faster than such spending for the same
beneficiary in trnditiQnal Medicare."
Two, the ingredients lor a competitive mnrkel place - one cupable of dri ving down prices
- arc missing. As discussed abovc, consumcrs ha vc trcmcndous diOicu!ty distinguishing
a1)long hcalth plans - a kcy rcquircment lor il fUllctioning mnrketplnc~. Consumers also
lack the necessary price transparency, ability to ellaluate alternate treatments and
confidence to make market driven detisions when consuming health earc services. For
serious medical conditions, most consumers defer to the treatment recommended by their
doctors. And as mentioned abov.:, eOective fisk adjustme nt mechanisms and
understandable health pliln di sclosures that are key to this type of ilpproach n!tedto be
gn::.:.tly improved.
Three, Ihere is lillIe el'idellce that costs would be Iowa. The cno eslimates that a private
health insumnce plM eovai ng the standardi zed benefit would be more expensive
currently than traditional Medicare.' This shollld not be surpri sing. The Medicare
Advilntage program - a nmrkel-b.1sed alternative to tradition:!1 Medicare - costs lllorc,
not less, per bellelieiar)'.~ Thos<: fixed monthly ,paymcnts to Ad\'antage plans are, on
avcrage, 13 percent abovc Mcdicilrc FFS costs.
MOl\:: broadly, private plalls operating in the commcrcial market place now have providcd
linle evidence that !lley can lower costs more succcssfully thall MI.>dicare' s eurrcnt
approach.
6
Elmendorf. Aprit 5. 20lt lcner 1<.1 lIonnrdt>lc 1'aut Ryall.
hllp:llcoo.o\"/5il~.""lkfaull//j Icslcbolil"-"flpdoc.tl 21 xxldoc
t 2128f04..{)S-f)'lIn _Icncr.pdf
l tbid .
The Mcdia.r..- Ad,p"lag~ pi"Ugrnm $h<ln:~ mnll)' ofl he ~am,' fealure.' oflhc premium . uppor1 pmgron>.
Ih~ plon ~
muSI o1Tl:r a bend,l
IhUI;~
8tluurially
e<lui~alem
Iii Medic,,",. ll,cy ti!.::e anl,-d;Krin,inal'iln rul
risk adjusltd pa)m~nI" t'(>m CMS. CQStl; t~" nlra bcnc/jl ~ "rc bon,e b)
the,,;, pro~,...~m fe3Ilm::s. cost>; arc! hif'hcr in Ihe Mtdi~are Ad"an~~ge IImpn.
and
r~c~iv~
~"dic;ari~".
IX'spite
' Ilrlan Ili!c~ and Gmct Amold. "Mcdic-are Ad"Mlage Payment I'r(n isjon ~: ! 1Cl\lth C= and Edu.:ali" n
AlTordabit'lY Recon"it ialion gCI
of2\JIO It.K . 4872". Gi."<I<llc
Wa~hinSh'n
Uniwrsil} Schoot <)f l'ul)!ic
llcallh. Man:h 2010.
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90
Medicares Finllncial C hallenges CII " Be Addressed
We can all agree thm Medicare finances need allcntion. HQwevcr, cXJl<!rlS agree that there
are multiple ways to add ress Medicare's financing gap.
For example, there is wide.spread agrccmentlhat adopting mcasures such as reducing the
usc of redundant or unnecessary teslS, reducing Ihc usc of treatments that evidence shows
arc not elTective. increasing the use of generic drugs. and increasing the elTectiveness and
usc of prc\"enti\'e care can all reduce cost.growth. The A1T0rdabie Care-Act introduces
numerous pi lots designed to alter provider incentives to I\.--duce the u~e of the unnecessary
services.
As we wait for the evidcnce from these pilot programs. 11UIlIerous other proposnls have
been offered 10 achieve the savings needed. such as extending Medicaid drug. rebates Ii)
Medicare dual eligiblcs. 10 M:my experts bel ieve that significant s.1vings could be
obtained i(Medicarc is allowed to negotiate drug prices. Curreni law bars the Centef5 for
Medicare and Medicaid Services (eMS) from negOLiating Ihe prices for drug..~. This is in
stark contrast to the Veteran's Administrntion (V A). whith negotiates directly with drug
manufacturers and is not bound by the sume funnulary rules:.lS Medicare Part D
prescription drug plans. 11
C rt':lter C hoiet' For lJendiciarics
Another argument olien made for premium support proposals is that beneficiaries will
benefit from grc:ltcr choice. Decision-makers must critie<llly examine and rejeet this oft
made :lrgumenL The research litermurc is clear th:lt whilc n few choices :lfe good, tOO
much choice undemlines consumer decision-m :l king. J~ As cogniti ve functi on declines. It
becomes even more diflicuh to navigate multiple choices.
In summa!),. Consumers Union can not support moving Medicllrc in the direction of the
pri vnte ..::ommcrcial insurance m:lrkct. whic!t is mort: exp..:l1sivc. has higher administrative
costs and would put Medicare bel)i.'!ici3ries at much greater risk. There (Ire numerous
" Ro"""
1\. Bcrenwil and Joon Holahan . " I'r.:M"\in!!, Medicau : A I'r~ctical I'Iprrl>ach 10 Controlling
Spending" , Ihc Urbru. InSlil~IC. &plc~nbc~ 2011 .
" Frnkl. AU . .S. I'iz~r ami It Feldman . "Should Mcdicsrc adoplillc Vct~rans hcalth adm ini ~lrlnj<>n
f,)OnuIMyT. II~,*"
Fii"",c i'<g'(- rOl",,,,;e., M~) 20t2.
I ~ Y~ni ~ IlpnQCh ~1 al . ''Clu<ice. N"mcl"ll~Y. ~nd Ph} sidans-in-Tmining l'e.fO!Tl1ance: The /.:a!l<' or
Mcdil'DrC I'art D.II~<!IIII P'J"clroIog). Jul y 201U: Slac<'Y Wood el al .. "Num~rlicy ond M ~dica~ I'~rt D:
l"'l'''"~''C~ nrCllok~ and 1..; lcr~ey for Numbc:", in Oplimi,i"l1 !)eeisi"" Muking filr Medic""'.i
1'n"$C.iplion Druji l''''Y1Im'' f'syf'h%gyA"'/ Ag;,,~. June 21)11: J. Midlflcl McWi1li RIm C! at , "CCI",pJc~
M~<li<:a.e A<lvno!~g, Chokes M~y Ol'erwhcloo ScniOOl- I:. p.:dall} ThOM' Willt tnlpal...,d [kcl ~i.)n
Ma~ in~". " ... ,I,IIAffi,in 5<'pI0111l1<:r 101 t.
em'"
n,,
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91
olher sleps lhm could be 13ken 10 help shore up the Medicare Trust Fund while work ing
to address lh l! broade r COS1 issues Ihal afTCl:I all of the health care sec tor.
Submitted by:
OcAnn Friedholm
Director, I leahh Relonn
ConsumerS Union
Olliee:
11 01 t7, h Sl.. N ,W.$uitc;OO

Washingl0n, D.C. 211(1)9
202.462.6262
202.265.95 48 fax
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92
WriUen Stllienlen' for 'h e R.....,ord by
Familirs USA
CommiUet 011
Way~
amI Means
Il ea riug on Medicare I'remium Supporl l' rOIIO$als
Friday, "I'riI 27. 2012
TIle House budget resolulion (II. Con. R,"S. 111) passed on March 2Q, 2012,'lIlIs for replacin!; the
cllfTenl Medicare proll-m", will! 3 voucher-based system called "premium support." Families USA
is dc~ply ItQubh:d b/ the implicationS orsuch a s)slem. Ifenacle<i , this plan "oold have
devDSl3ling consequ~'llCCS for S('nio~ and people With disabilities "ho rely on Medicare today and
for lhose who wilillred il in the !lllllre.
Under Ihis vision flIT Medicare, the progmm's currenl gUnrIInleeof coverJg~ for everyone ""ho
qUlIlifil.'S will end lind be replucl-d wilh II pmmise of n /i:.:ed IImount of money (i.e., II vouchen to
purchase hC311h i n~ur.lI\c~. The pl~n shifts risk alld C(IStS onto individuals. lflhe voucher is
il1Slllficient to pllrchm;e comprt'hcnsin~covemge, individuals would hal'<' to either pay for the rest
ortlleir e3r1." OUI of their own pockets or go without il. Medicare would face !;I"l.'aler ~nd greater
cu ts overtime, with payments on behalf of beneficiaries being Cll! b)' 23 percclll within seven
yenrs orthe new s),stcllllaking clfecllll1d a 42 percclll cut after tll"e1l1y-seven y~ars.
Th e prr mium SlJPf>Urt
IJ I ~n
does nOI
~ pr~~crv~"
l\lediC3 re---il cuds I\lellkarc liS we kno ... il.
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Even ifsoml'thing c31led "Medicare'" still l"")<isls under this plan forthe progr31ll. it wilt
provide Jess prQt~"Cl ion ~nd ellSt mort' thUlilhe progl"'dl11 we h3\'e 10113)'.
93
Calling somelhing "Medic:l/"e" does nOI make il l-.k-dicBre. A "t."hidc Ihal 's missing
wheels, brakes. and doors i$ nOI a car." no nmll~r whal a salcsman ca lls i1.
The premiulIl suppurl pl:m
r~i sl'S
bcncficiuri u' uUI -uf-l}tJcket (us lS,
Thc amOllnl oflh" \'ollcher will not ket!p up wilh increases in health cnr.: costs,
OVl'f time" thc voucher will buy le~s and lC'Ss coverage, and the bcnelidaries will have to
either pay more or go without care,
T he prem;um SUIJport pilon reliell on eM ily pr;\'II' c in sll oo nce cumpun;cs.
",,,'ale plans in Medicare have alwa"s. on average, COSI more. nol less, than the trudiliollol
Medicare program 1(1 d<'/il't'r lite sume mr(' ,
Pr;I'otc hl",1llh illSllrJnte companies have higher"dmini~lr~tivc COSI. Ih:lII Mcdil~Jrc OJ1d
linN pay f\)r markt'ling. s:lIarics, adv"nising. and pmli15,
Privalc in5ur~nce c01l1pani~s' poor Imck re~ord in controlling Medicllr" CO$IS suggesls thai
premium support will not be ab le to S!IVC mone), without passing costS onto beneficiaries,
Th e premium SUPI)(I rl pla n I"IIS cur renl
b~nefici~ries
al risk. too.
Even ifthc pr~l1lium support proposal is phased in Dnd traditional MeiliCllT<' remains on
option iolm: future, current beneficillries wHI face higher com,
I l e~lthit."r and "eallhicr beneficiaries will likely k~ve traditional Me<Jican: for che~p<:r
(}rivale plans thil! provide k-ss protection bccauSl' Ihey can alTord 10 JXly additional oot-ofpock~ cost;; th~ms~l es,
Higher-eosl p~lknt ~ will remain ill traditional M ~dkare, tit('feby pushing up Medicare
premiums for t."1'l'fyone left in the prngJUm, Higher premiums would encourogc more
people to leave traditional Ml'dkare, increa$ingMl-dicarc's costs further,
Th e premium sUI/porf pla n d oes lI ut "ddrClis
10 lW niors li nd people "ith disabi lities.
M l'tl ic~ ~'s
fisca l ~ hMlle lll!es--i l just s hifts ellS ls
The kcy to Ii~ing Medicare 's liscal prnbli:m ~ is to slow Ihc rale ofh~~lth care cost growth
The AlTordahle Ca re Act lays the ~round",ort for making Ihe health care system more
efficicol b)' encouraging dOCtOr:lllOd other hcJlth care providwi 10 work logether 10
improve quality. ket.'p people healthy, and I'('du~e unnet:essnry C'Me.
Alrl'mly, M~d; eare's annual C{)SIS have g,rown mort s loll'ly ;n rt'Cl'l1t yC'~"" than in prior
dct:lld~"$. We need to leI th~S<' rerOrm~ take rool.
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The bhd!;"1 proposal is lh" IUli.'S1 u1!empt to tum Medi~~r\" inlo a priv31e vouch~r system and
comes wilh a!lthe same problems ns prcl'ious proposals. BUI Ihe plall off~1'S no explnnation for
how seniors and p.:ople wilh dis.1hilitics are cXJX!~led III pay for the cnre lhcy need us the value of
their \'ou~hcr d~dincs, Th" roug/II)' hatrofpeople w;lh M~dic~,... wlto have limited inCOOl~ would
be forced 10 CUt back on (Jth ... r nccl'Ssities like fvod pnd shclt~r --or go without he~lthcal'(', If
enacted, thi s propos:ll would fundamcrllaJly viola, .. Ihc promise thJI Jl, ll'd(carc has made II! current
and fulUrc generations, which is 10 ensure access to ~omprchensive care 3t a lime in their lives
II'h~n Ihey are mOOI vu lncmbl .. ,
94
Strengthen Medicare. Don't End It.

Medkar~ pmvid<.'S heahh Mil f'inondul ~Ilrity to 4)( million olJcr and disab\c-d AmeOl1Ins. and it
f'I"I,ykks 1l~!l1I with Ihe ::'CunlY or knowing IlInt OIlr rdati,...'!! wH\ he prolected from un i~'n:sI.-.:~ble
ri~ks in old IIgc or disability. With pO"Q!~ pensions ~"apllf1l!in!l and personal iavinv eroding in the
midst oran c'(.!onomic erisi~. Medicare is mt~ "ilollhan c,'tr. ""Premium support"" wooid pri"olize
Medicare and end "kdicare ~s We kr.ow il. rom h) ellmlnulinS the Medica<"\) guamn!e~ nnd shitling
huge c<l5IS 10 enrollccs.
MediCl ~ wor ks. n "d .. r need to keel' it s lrong for f,lIu re ge n tl'1l tlon~. The AflOrdablc Cen: ACI
/ACA) has already mooc $C"era! chuojlC5 IhDI make Medicare bolh
im;umnce for scniOfS.
mor~ CllSt ellbcti,'c
and bellcr
Th~
ACA will sa,'CIPXP<l)'CIlI mlm: Ihan:5200 bimoo by 2016. resulting in an immediaLe

bo.."llefiL to the Trust Fund. NOlle ofthesc sa' illgt oom~ from shifting C()l;t ~ 10 s.:nh"lf:<. MMt will
be :!Chic"c,", b) endlngm'erp<o) men!>; to privale insurers and paying M<:tOIll l'or doing good
woLi; inSICl>d of ju.st more
\\"\10;. I
The ACA improved Mcditarc's Iong-Ienn fiMllcial ()lll iook. Mcdkarc's 1"11151 Fund is fully
funded lor Ihe next 12)'eari while the hisl1lri~31 a,~~t projc.:ted lifcsp.m urthe fund is 11 .3
ye3ni. l Efforts 10 repc. i lhe ACA weaken Mc-dican:'~ linancial oullook.
ht 2011. senio", who <'!uch Ihe ~ripLion drug CQI'crage l!~p. Or douhnllllwl~. ,,111 rn'\:i,'~ K
~O ~cm di !ICounl "hen bu)'in2 Medica<'! Pan () cuwrcd brami-name prescripLion drut!s.
Ovi:!" the next 10 YC"N. scni!l)1; "illl\...."'j'r additional SIIving.' on hrun,j'n"",e and generic
,jmg.s untillhc C<lVCIllgC I!;~p is clo!\.'d for good in 2020. J
'rhe la" pl"Iwidcs eCf\"~1 p!"t.'VL1\livc .serviCe'S. ~uch as ~nual wclln o:$S visits, lut>;t~C<) ces..<mjoo
coonsclin~, prcvt:nlivc S<.T<....Tli02S. ~nd pcn;ooalizc<l p,,:wtuion plruls. at no ro~1 rOT S<.TljQfS un
Mc-diCllre.'
'I'he ACA c'!;tabli,Iu.-.J" ne\\ Center for McdicM:: & Mc,jic$i,j Innnvatinn Ihal "ill begin (cstin,"
''''''" "")'5 10 buy and d~li\"tt CUI\.' Ihm impmvc ~ualh}' "hilc I",,"cring C,).iUi.~
Ill<' 1,,\\ <.~Wb!ished llIi:- ConHnuni'Y tllre Trlmsit i<lns I'rogrum. which help.> bigh-risl:
ho>pi\Uli~..,d Medit'llre ~Ih:itlrics avoid unn<l<:'l.'SSal) ri!.'ldmi~~ion> by ~(>,"lr<linaliIlS carc and
conlltCting plIlil'nLS to cO"''''Unil)'-bascd "'crvic,'S."
'(;_fotMN ..... """MNkold$"l~-n.o"'TJol>l<C... ,"" l .......... ~lo.J ..... C_.IIl I""""""'-c-- Zlill
tI."i', .. ,IMunIo['O....c ' ........ ,~ "<di~ I............ , ..... ".""" 1'iItI-
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jf llhC."" ... ""'mc.No~
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.Of,
95
If
i ~ n1is' t~ding
10 <illY
th ~ t
Medic"rr is " bYnkrul,I.-
Aller :::!024. re~enue still will be able 10 CO\'er about 87% ~r Bospital l n~untlice ~05t:i .'
l'hysician and outpatienT ~rviees and the prescription dru!! mneti! ar~ not - and ca"not - N
insolvent. There i~ a slwnfall in l/ospiwl IlLsumnce fundilLt. buI it is dising~nuous and
decep,ive 10SCar>: scnion by sayinll thal Medicare is "bankrupt:'
Prh~ t r
i.., urancr is hanJly
,)nlHIl
il nlff~r
~n aIJI'rt>"ria re ",<MI,I rur

Ius . rr.eth. in controlling ws ,s.
1\,.t1i<~ rrs
futu...,.
Pri,~ t .
i.., uranc, has
Unlike pl"iVlllc lnsurnne~. Mcdicare'ji per..;:apila costs arc grow;ng at Ihc >(Ime p;!I;e as GO P."
On averagc. per capila COSIS MV. ri~n 1% Jess in Medicart Ihan in privale insurance each YelIr
since 1970. ThaI means private insurnnce pl"\"mium~ have ri~l1 ~lmosl 60 pen;:en! fQster thftn
Medicare', per eapita costs.'
lbc ("BO proj,s that privaliz ing Medil-aTe would lead hCllI.h Cllre COSIS 10 be bO pen;"m
hiJ;.her for a typical 65-year old by1Q3S. ,..
Private insurers con-c~'de tltcy c~nnOI con'rol COSts. "' Ttlc oos. IJf health COVCrn.\lC lias
IJulslripped tm: gro"1h of W~SC"S, caling inlO family iocIJm.:." 1 MallY employc"fs ~'" CUlling
benefits and raising Co-JII>Y5 Or eiiminatingtovernge ahogc1w,r.u This is why the Affordable
Care ACI i~ 50 imponanll() families.
Owr 1m: next de<:adc. private ;lIsur:mce pr;:m;ums are pI"Oj ,.:d 10 r;~ nearly 50 percent faster
Iltan lhe per c~pila COSI ofMediclU"<." each yc-ar."
Sincf l\1~dicare i~ murt d fk it nl Ih~n prh. tt in~ urers, Ih ~ on ly ..... y a premi um SIII'POI"\ sys lem
can 5a,t mo ncy for the gO" ernm cnt would ~ hy ~ hlRjn g CO,IS to old er and disa hlcd Amfrkans.
" Premium suppon"" shifts costs 10 eurulk"c.s."
'111C vOlocher pis" prupo$Cd in !Judget Commince Chainnan Pm..1 Rynn's 13testb~dg<!"l conlrol~
spe"d;nJ!. by ClIuin ,he "al"" of lhe , oucher."
, B _ .n
"'...... r .... ,.......111""'..1 """'~ """ I'alern s'"i'l'l<m.. ~ Mo.6<>l ~ 1 '"" F""",- 1011 .,.""ul lI..,.rI,
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ll~"IbC"_rlo'"";""l'~" "'
96
Annual Medicare Per-Capita Spending, 1997-2009,

Actual Spending vs. Hypothetical Spending at Private
Health Insurance Growth Rates
~ Actu~1
Adjusted
19':17 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
In order to get ~ handle On skyrocketing he.llh carc C<l'tli. We n~"Cd to de,clop n~,," h~allh tar.;, <lcion"1)
systcntS th,u coordinale care lOr the people with the hi~est COStS and ere:,le new [)U~n'e"t mClhlKl< that
reward ,alue. not \01,,10<'. Medi<are is rsse ntl MI to d rl' in g nu ded r~rorms bru u~ It givl.'S
policymakrl"S th ~ meanS 10 enco urage pro'idcrs 10 ~ dopl besl p rac lices. !'!'o_IJr i' a lc b"" lth
insuraQ ce tom(!a ny bas th ~ jnnU~ ntt th~ 1 Mfdka re bas 10 cbanl:e Iht .. I!l1Itt kr!i.
Medic"", ha. u history "fdri\"ing innmalions laler adopt"...! throughoul lhe hcaith carc Sl:cIQl".
For example. Mooicare's fee .schc...!ule. aduploo in Ihe 1980s to prevent provid~.,.. frum "uing
exomit~nt rmes. is Ihe basis
prices throughout Ihe syslem. "
The Affurdablc CIlf, ACIll""C MeIlicar;: Ihe manJaleand Ihe r~uri:CS 10 delclop pil"l
progrnms lu l<'Stlhe cn~""li'l"CS!I of ditlerelll system rcfunn "hiclt cn:lIl~ fiml1lciul ;!lC~l\l;l"l"s
ror providers lu imtmJ\"eeurc "hite c\mlrolling COSIS.
De.... eloping rclial)!e m~~oiSun.~ o fwhut work$ and whal dOl-osn1 i$ k~} to lultg-lenn $uvinll$.l)u\
it's a longlenn proc>.'S~ thDt'~ju5t ~ginning. " 111;;ural1~c rompani~ arc pr<\\"l1l~ II)
ror
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Ill~ Ii:. S1'' N I\' _ 4~ ~100l" _ w.,"'''I1''.... DC lOOQI; _ 20~4S4-1>2I)j!

H." 1111(". ,.."., ,n.ri<oNo~ .0(8
97
l'ompclitivc imJICr.lli,'es and stwrH ~mlthin k ing from making long-Ienn commitments 10
sludying Ih .. health $),slem Or to sharing fi ndings with rivals.
M edi .... n! CO, 'N'5 ~ I.opuia lion Ih a l ,,"ould hB" f Ul rt l11 f diffi t "Uy s ho ppin g fo r eO\ 'f1'1l)::r.
Surveys show thDl 290/0 ofscniors have "below basic" h~alth lil""11I<:y. meaning lhey lack Ihe
"'caral'ily 10 oblain. pt"OCe,s, al!d uoocrstand basic hC'~lth ul(onnation and servic('S ocl:<le<J 10
make appropriale health lkcisio11S,~"
Nearly one-third oft.'Jedic= enrollee!! hUI'c some sort ora COj!.Ilili,c imfl<1imlcnt.l<J
Commercial in!m rtn'
Comm~rcial
bu~ineu
modd is b "ilt 0 " d r"" in g (0\"Cr.t1!~ 10 the mO"1 Yuln .... blt.
insurers are likely to engage in a practice kno"'n as "risk-sdection'" orcr.:arn
skll11l11lng."lnsurtrs desIgn benefits in ways that do n01 rncC1thc "C\.'ds oflhe slck~1
lndivilhmls. ~K'/:rinll t h<: mOSI \'uJ~mble inl,' public programs. a praclice thaI berome5
increasingl)' IInafToNnblc b.:ca"se il cOVe""" very risky popul ~lion. This cre3t1!:5 a two-tiered
heahh care syst~m: 3 low_oost one for ~ healthy, and an c)I"lr.:mdy e.' pen.ive one for the
sick.~ 1 ,~
nlC" ~o":mmcnt can try to address :WveJ'SC risk-sclccliun by making cnhan~ed risk
udju511nent'" ptoyrnl'11tS designed to shield health plans (ronl the cOSts Qfcovering the 1l10!it
yulncrable. bul M~'<licare Advnnlllgc plans have prow" adepl at gaming this system,:)
Our par.:rus and grandfl<1T1:. 1ts builllhe Medicare system. and hund..-ds ofm iUions of Amerkans were
wdl~ed hy It over the IQ~t hnlf century. NOlv i'-5 our jnb to ~trengthen Medicare fnr fUlure
g~'11erntions. not break il inlo piet:~':S and tum It over 10 the insurenee [n<lu'II)'. Congress has lhe PO'"''
10 en.ure thai Medicare remains fonancially ~Oll n<l , Congress has a r.lJ1g~ of ways 1(, trinl Medicares
costs. reduee wast .. and incffic;encit'S. ar.d ra i~ additional re~~nue tu save public funds withoul
privatizillg Medicare ar.d shifting more custs to vulnel'llble Amc:ricans.
"COO. L.....,. I..... .1-1..00:....
u....... ........ """",,," '" 0._.. M~."'" c-r~:"'nl ("~ and " . , ..s.....! t"l_.
~ tl . ~Ut ~,
" ~ ....... c....." T.. td_;"" s....""", " Tn. " .. lito l"-Y '" "".m.:.'...."'~'" ~...~. fro", Iht lOOJ l'IMiooIoI ....!C4\\.... III'
C...... Li.... <),- ~
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1t .. ~l!(" .... fl><f<mrrlc. N"" ,Ott.
98
J1VAlIHCARE
I.EADERSHII'
C'?-UNC IL
May 11 , 2012
The Honorable Wally Herger
Chairman
U.S. House Ways and Means Sul)committee
Washington , DC 20515
on Health
Dear Chairman Herger:

Mr, Chairman, I am submining this statement on beha~ of \t1e members of the Heal1hcare
Leadership COl.lncll (HlC ). The HLC 15 comprised of chief executives of the nation's leading
healthcare compan ies and organlzallOns, representing vinually ail sectors of American
healthcare. It has long been a priority of HLC members to protect the long -term sustain ability of
the Medicare program and to ensure that beneficiaries have access to affordable, high-quality,
innovative healthcare.
There is no qu'eslion that Ihe Medicare program, as it e~isls today , cannot be sustained for
fuhJfe generations. Each day. 7 ,500 baby boomers are joining \t1e rofts of Medicare and, on
averag e, each of these beneficiaries is receiving three dollars worth of health care services lo(
every one dollar they paid in payroll taxes. In 1965, when Medicare was created. the ratio of
active workers-to-beneficililries was 19-to-one. By 2030, there will be only two ta~paylng
workers supporting each beneficiary
These statistics tell us that structural reform 01 the Medicare program is impera tive. The currenl
lee-lor-service program in Which the vast majority 01 beneficiaries are enrolled does not
sufficiently Incentivize value , cost-effectiveness , Of positive patient outcomes It Is a program
that pays for volume of healthcare services, but not necessarily for value -drive n care.
There are different options available to address Medicare's fiscal crisis. One is, of course,
simply to reduce the amounl of money the government pays for healthcare goods and services.
When provider payments are reduced , however, beneficiaries pay the price. Already , many
physicians place limitations on the number of Medicare patients they will !reat because of the
program's comparably low reimbursement rates , According 10 a 2010 American Medical
Association sLirvey, 31 percent 01 primary care physicians already restrict the number of
Medicare patients they see. Cutting payments l or pharmaceutical products and medical devjce~
wil( simply deprive selliors 01 access to lifesavillg and life-improving health care ;nrlova!lons.
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Thi!J i'S the prim ary flaw In the Independent Payment AdVISOry Board (IPAB) concept. wtlich
some cite as an answer to Medicare's financial challenges. Wash ington cannot simply make
99
arbitrary curs in Medicare expenditu res Without ad~ersely affecting the access to care and
quanty of care pro~ided to Medlca re<lependenl seniors and disabled citiZens ,
Many loutlhe much-needed delivery sysrem refolms thaI were pan of the Palienl Protection
and Affordable Act (PPACA). wnlle we ag ree thai these reforms lire II slep 1n Ihe fighl
direction. we do nOI believe that they are enough : nor wiil lhese changes offer the array of
choice that would be available 10 beneficiaries throogh a Medicare exchange model. similar to
the Federa l Employees Hearth Benefrt5 Plan (FEHBP).
A more palienlcentered approach 10 improving Medicare would invol~e using tile power of
consumer choice to dnve lIalue, qua lity, and posltove outcomes. We support the concept of
empowering Medicare beneficraries w'th greater conlrol over the,f own hea~hcare
decision making .
To be more specif,c . HLC has been on retort! supporting an approach lIlat WO\J1d give Medk:are
beneficiaries Ihe opl,on of remaining in con~entional fee-for-service Medicare or mOiling into a
competitille exchange in which multiple health plans would compete lor beneficiary loyalties by
offering high-quallty covel1lge options a t affordable premium rates. In order for soch a
competili~e eJ(change 10 be viable . plans and pro~iders would halle 10 emphasize bolh ql.la lity
and cost-efficiency, liS well as ensuring allordability, especially to attract indiViduals with lower
Incomes.
Th is approach has worked successfully 'n FEHBP, under whiCh members of Congress and
federal workers choose Irom a wide I1Inge of competing health plans . The concept has also
worked well 1M the implementation of the Medicare Part D prescription drug program. In Part D,
offering seniors a choice 01 plans ~as resulted in mUCh lower-than-projected program cosls .
affordable mon\l1l~ premiums, and extl1lordlnarily high benef,ciary satisfaction rates.
The cD!1sumer choice approactl will also be utilized in tt)e slate-based healtl1 ' l'\suF.lnce
exchanges that serve as a cornerstone of PPACA
Lealling aside tbe eth ical question of whether seniors should halle the same power of consl.lme(
choice that so many olhers enjoy . II appears clear Ihat the Medicare program would gain greate,
Sl.lstainabliltY Irom this type of reform . In order to conllince beneficiaries to shift from fee-forsell/ice MediCare to a oompelj~lIe exchange . plans would halle to offer affordable premiums and
an appealing scope of cOllelage . Health providers would inno~ate 10 provide h lgh-quallty care
in an en~lIonment that emphasizes cost-efficieney .
This Is fa r pleferable 10 an allemative In which a/bitlary across-the-board cuts ale m ade by
government fia t, 10lcing healthcare providers to further restnct beneficiary access to care.
The fact is. policymakers are go'ng to ha~e 10 choose one 01 these directions. It is a fa llacy to
insist that we ean maintain the Medicare program exactly as it e~ists today E~e n Ihe most
recent Medicare Trustees report thai projects program insolvency in the year 2024 is painting a.,
unrealistically rosy scenalio. As CMS chief actuary Rich ard Fosler has pointed out, that
project~n is based on a scheduled 31 percenl reduction in Medicare physician payment IlItes 'n
2013 that almost certainly w,1I not occur. This tells us that the need to relorm the program is
even more urgentlhan commonly assumed
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Cha iflTlan Herger. we applaud you and your colleagues fa' shining a spotlight on this vitally
important issue. 1\ is impel1ltive thai Congress begin the p rocess to reform . imp ,o~e. and
100
strengthen the Medicare progr am We strongly urge Congress 10 develop reforms th at are
patienl-Ge(ltered , that provide care Ihat is both accessible and high-qualily, that gives patients
access 10 lifesaVing medical innovations, and that sets Medicare on a path toward 10f1g"term
suslainability if1slead ollhe shOl1-term rellel offered by arbitrary biJdge! CUIS The Heallhcare
leadership Couf1cillooks forward 10 working wilh you on this critical priority,
Sincerely,
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Mary R. Greely
President
101
<!iii(l),.... _ ... ----
~ ~OCIal ~8CuritYc;rM8dical'8
III
iMle d ' IndcperlOen '. fjtect"'e
U nj l ~d Sl~IH HQus~
of ReprH cnta l i\l1'5

on Ways alHI M u ,,~, S ub~Q"' miUf~ (In Heahh
Ht~rln g on " Mtdin rt Pr"mium S" I"wrt Pruposals"
Friday. April 27, 2(112
Co ", ,,,illf~
Mr. ChaimHiIl and Mc",bcr~ urlhe Ct)mmilt~...,:
I am
M~x
Riduman . l'rcsidcnl and Chid Execul; , e Officer " f lile National Conlln;U!'c h'
r'r<'serve Social $<>C'Ur;l), Dod Medicare. und I upprt.'cinle lhe UptM'lllll;.Y Iu ~ublnillhis ,IaK1ne1l1
for the record. With millions ofmcmb.:rs on(] suppMt~n; acrMS Allleric", the Notional
Commilwe is a g,rnSSr{lOts advoca~y and education urga"i~1I1ion devoted to prc;;cTvillg ~nd
prom!)!;ng Social Sl"Curil), and Mcdi~3re. As you kilo". these pmSnuns an: tht" iijundaliun ,~f
finnncial an.:! hC"lllh scturity for older Americans. Today, I '1'111 address our conccms al)oul lhc
Mcdi~arc premium suppor1 proposals on CUl'T\'n l and fUlUre ocnclieiarics and
ncg.1lil'c impllCI
suggc,1 aiJcmalivl' way~ I,) imprtll'e Mcdka",'s lOIlS' lerm tinun.:;ul S41ln~K)' .
or
Reccully, the National COllllllillL'e eOllt~clcd all Mcmhell OfCOIIgr>:Sli to advise Ih~tn of our
tu II. COil. Res. 112. Ih,' Hllus~' BudK'" Re!KIluli<)n fIN' Fise~1 YCIIT 2013. which
priVHli%c~ Medicare ol-er lim" and fich;e~"s s.avin~;; r<lT Ihe rixlernl gMtmmenl Ihn)ug,h a
premium 5uppon syslcm Ihal "OIIld shill COSIS 10 Medicare bcncliciarics nnd olhc:nl. Beginning
in 2023. "he n people b\.'eome cligibk for MediC'llre Ihey wllUld nol enroll in Ihe current prugrnm
which provides guaronk'\'d henents. Ralher. Ihey lI'ould ",-"",eive a ,ouellcr. al so rcli:m:d 10 ~ A
prc lnium support payment. III ho: used 10 purchase privnll' h~ahh inSUI'\IIlCe Qr tradit ionul
Medicare through u Medicare E.'(ehru~c.
uPP<lSitl(~1I
The ;lnlllun\ Mlhe ",ucht< \\nuld tJ<, delcmlincd each y"ar "hen private hC;J.lth ;n~"rallcc pluns
and Ir:ld ilional I',lrdicore par1i~ipal ~ in n competitive bidd ing proc~s.~. The am{)unt ofth ~ voucher
"ould be ~qUB\ 10 ",hallh.: second-le:l.St-c.~p.:lIsh" pril'at~ plan or tradilion al M~dicare agret:d 10
aCCept III cover Mediciin' bellcfidnrics. Seniors chN'lSing Dmore e:'l'jlClIsivc plan wmild be
",--quircd to pay the difference between Ihe "Q"eh~'T and Ihe plan's pr~'1T1illm. which could limit
IO\\'~'f-income bclH:liciDrie~' IICeL'l\S II) cel1ain plans. 1111>5': ehoosin)! a h.'Ss-cuSlly plan w\lOld
rccci,'c a rebntc, Under Chainnan l'ulIl Ryall'S blldg~1 resolution. the unnuul gTlllI'th ;11 Mcdic~re
spClldilig is lim ited 10 ~ros~ dOlllcslk_product (GDI t n.S JlC",ent, a r:tle likely 10 be tllwcr rhan
the growlh in hc~hh <osts.1fspo.ndilll:! c.~cccdcd this alllouni bcllclici:trics "ould be subj~'l:11O
additional oul-of-pock~l (O!ilS. '11lnt i~ bccao~ the hlnollnt the fcdcntl gOl'cnlmL,1l prol'ides for
th<'i. ,""eh"r wou ld bc limiled.
Chnirmlill Rynn's blldg~, n.'l\olution cnll, for pril'nle plMS to pmvidc bcllCtits th in nre 111 Ica,l
3clunrially ~'qu i l'alcm 10 Ihe bcnclit p<'ckage pro, ided by fL'e-lor-scrviec Medicare . This giles
pril'all' CQlIIp,anlCS Ih" abilily 10 tailor thei r plans tOllllmct Ih~ youngl'Sl and health;'..,;1 scninrs.
evclI if paym~ntS nre "ribJc- adjusted" 10 take hCliith Slatus ililo ac<'OUIlI. which would Icnv c
traditional Medicare wilh older and sicker bcncticiarics. lne'r higber hc~llh CUlUS coul d lead 10
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10 G Stree !. NE. Su lle 600 Wosl1ing!on. DC 200024215 202-216.{}A20 www.ncpssm .org
102
higllcf premiums Ihlll pL><Jplc would Ix: unabk llr unw illing 10 pay, re$ulling in a dealh spil'lll fOf
tr:Iditiolt.a1 M~dicurt'. Th is would ud l>~rscly impact pt'Oplc ug~ 55 und old.-r, dl'spilc Chuinnan
Ryan's ~ssenion Ihal nothing will change for them , as well as people cUITemly enrollcd in
traditional Mcdi elltC.
The Ryan proposal eSlablishes a(:CQunl$ for low-in~omc Medi~are b~nctieiari~$, I;kely tho~c
people eligible for Ml'd;C'!Ire lind Medicaid, to usc to pay premiums, co-p;'lym<'nts and f1t ller out
of-pocket co~lS. How~"er, il is unclear whal Ihe amounl of ass istance would be or ifit \\><JlIld
adequately cover om-ofpockel expcn~. 111 !lddition, the plnll applies CUlTem mcans-testing
thresholds for Medicare !'an B and D pl'Cmiums rur higher-incomc bcnefici3l"ies!j.() Ihatlhey
'I ould continue 10 Imv .. higher costS in th .. privali1..cd Medicare syS1t~n.
In addition to privutizjllg Medicare oler time. thc Ryan budgel would incfea;c Ihe age of
clij!:ib i\ity for Mcdic!lTC from 65 to 67 by increasing it two months per year from 2023 to 2034.
111e Rylln budgel also calls for repealing provisioflS in Ihe Affordable Cart: Ael t ACA), which
will "'3k~ in,uranct al'a i la~1e and more arTordable for 65 to 67 y~a r olds. Withoul the guarantees
io the ACA , such as ,,-,qlliring illSU1"3llCe companil"li to c()wr pcuple with Pl'l.'cxisling medica!
cOllditions alld to limit 9ge rating, it would b~ very dinicuh and cxpcllsive f<-r older pi.."<Jple who
would Il() longer be e ligihl e for Medicllre coverage 10 p"rell,,~ priv ate ;"~" r:on,,e. Repe~ling the
ACA would 9150 lake away impr(lVelnCtllS !l1n."ady io place ror Medicare be,-,eliciaries - closing
the Medicnre Pan 0 prescription drug coverage gap, kllOwn ns the '"donut hole;" providing
pre"'~tt1ive screeoings and ~crvic.'S wi lh out oUI-of-pucket CllSlS: !lod providing antlual Iwllness
exam~.
Action is nl"\:ded 10 strenglh.'n the !ong-tenll solvency of Medicare, but il is tt11(lOt1mll to

remember tlUlt Mtdict\re's COSts on a per capilli basis nrc growing more slowly d1ll1l private
health can.' eO.'its. Costs will continue to inereasc because of general health eIre inn ~lion !lnd Ih ..
num ber ofpcop\e becomillg eligible for Ml"dicare as th" b:.by boomers reach agc 65. Any
diAlogue ullom Medicare soh<ency OlIi SI address W!ly~ to control overall t-.eal:h care illnMion
wllilc improving the qua!ily or calC bei1Jg provided,
The NMional COt11!1tillee to Preserve Social Security and Ml-dicare 5UppOn.s measures to im prove
Ihe Medicare program and its tinancing wi/hOll/taking away guaranteed benefits or shifting
addit'onall'osts \I, beuefic;u/ies, th e m;'ljority of whom alre:.dy have- higll oul-ofpoc\;et healtll
care costs and e!lllllot afford 10 pay more. 'n,cre!lre many ways 10 address the ris;); cost of
Medicare and il11prn\'~ Ille progmm withoUl dismuntling M~licarc and making he~hh care cOSl~
unatTordabl e for m3ny oldcr and disabled Americans. These include:
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Implemenling refomlS in the Afford3b!c ('are ACI (ACA), beyond provider payment
r;.-dUtt;C1Il5, lhat 9rcdt~;gnL..J 10 imprnl,,-qllalil)' ;'Illd n.-duCi'.lInllecciSJ.ry iJl"llding. ihe!.c
refOntlS include pmgmms Illm bolster primary cllre. e;;tabli sh ACCOOJ:tull!t Cart"
Orglll1izations. provide ror bundled p3ymCt1!s. and reduce t-.ospital re~dmissions. The
ACA n:foml s sllou ld be giventimc to suceecd before possib ly destroyi ng the corrent
Medicare program. which works well for so maoy seniors.
103
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House Hearing, 112TH Congress - Medicare Premium Support Proposals

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House Hearing, 112TH Congress - Medicare Premium Support Proposals

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MEDICARE PREMIUM SUPPORT PROPOSALS

COMMITTEE ON WAYS AND MEANS

APRIL 27, 2012

Serial No. 112HL10

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For sale by the Superintendent of Documents, U.S. Government Printing Office

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COMMITTEE ON WAYS AND MEANS

SANDER M. LEVIN, Michigan

JENNIFER SAFAVIAN, Staff Director

FORTNEY PETE STARK, California

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Advisory of April 27, 2012, announcing the hearing ............................................

SUBMISSIONS FOR THE RECORD

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AARP, statement .....................................................................................................

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MEDICARE PREMIUM SUPPORT PROPOSALS

dkrause on DSKHT7XVN1PROD with HEARING

U.S. HOUSE OF REPRESENTATIVES,

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CONTACT: (202) 2251721

Chairman Herger Announces a Hearing on

dkrause on DSKHT7XVN1PROD with HEARING

FOCUS OF THE HEARING:

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15:10 Mar 26, 2013

dkrause on DSKHT7XVN1PROD with HEARING

Chairman HERGER. The Subcommittee will come to order.

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dkrause on DSKHT7XVN1PROD with HEARING

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06:53 Apr 02, 2013

dkrause on DSKHT7XVN1PROD with HEARING

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dkrause on DSKHT7XVN1PROD with HEARING

STATEMENT OF HON. JOHN B. BREAUX, SENIOR COUNSEL,

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06:53 Apr 02, 2013

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dkrause on DSKHT7XVN1PROD with HEARING

made to those under 65 in the private insurance market through

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***TESTI MONY IS EMBARGOED UNTIL 9,00 AM FRIDAY,

Chaixman Herger, Ranking Member Smrk and members of the Committee,

opinion is thar in order to ever reach an agreemenr; Cougre~~ must

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